Debt Collection Agency Hungary
Amicable Debt Collections Hungary
1. General information
Cosmopolite Collections maintain a professional collection process, focusing on the relationships between our clients and their debtors at all times.
Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to federal and state laws. In case of any dispute, we aim to reach an amicable solution between the creditor and the debtor.
We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon). All investigations are completed with the assistance and agreement of our legal team.
We may decide during the collection process that a personal visit to the debtor would add value, and we are able to do this ourselves in the Budapest area.
Cosmopolite Collections always charge interest to debtors fixed by the Act IV of 9 in the Civil Code of the Republic of Hungary. From 15th March 2014, a new Civil Code Act V of 2013 came into effect. The regulation of the interest remains the same.
According to the law, interest for late payment shall be calculated by the central bank base rate of the issuing country of the currency in effect on the first day of the calendar half-year to which it pertains, plus 8%. If the creditor enquires about a higher interest rate, we can only offer this if it has been confirmed by contractual documents.
From a cultural point of view, Hungarian debtors often use the actual amount of the interest payment as a matter of negotiation.
1.3. Debt collection costs Hungary
Directive 2011/7/EU of the European Parliament and the Council has been incorporated into the Hungarian Civil Code since 15th March 2014, and from 13th February 2016, a new law, Act IX of 2016 Law of Collection costs, came into effect.
According to these regulations, we can charge EUR 40 as collection costs to the debtor. Further collection costs are chargeable, but there is no regulation fixed by local law.
The basis of any charges must be proven by contractual documents signed by the debtor.
From a cultural point of view, Hungarian debtors are not used to paying debt collection costs, and these costs are considered a matter of negotiation.
The general prescription period in Hungary is five years, starting from the due date of a claim. T
ransport claims prescribe within one year, starting from the delivery according to the Convention on the Contract for the International Carriage of Goods by Road (CMR). After the changes of the Hungarian Civil Code coming into force on 15th March 2014, only a legal proceeding can stop the prescription.
1.5. Accepted and most common payment methods
The most common payment methods are bank transfers and cash payments.
1.6. Types of companies
Egyéni cég (private company)
With only one owner, unlimited liability or limited liability for company capital (no minimum capital) A company without legal entity.
Bt. (Betéti Társaság) (limited partnership)
No minimum capital At least one partner has unlimited liability with their business and private funds Limited partners are only liable for company capital Company without legal entity.
Kft. (Korlátolt Felelősségű Társaság) (company with limited liability)
According to the last modification in the Hungarian Civil Code, from 15th March 2014, the minimum capital is HUF 3 million, which can be in the form of monies but also assets such as cars or company equipment.
Companies that have been founded before 15th March 2014 need to increase their capital to the required minimum level by 15th March 2016 at the latest. Liability is limited to company capital.
Rt. (Részvénytársaság) (corporation)
A minimum capital of HUF 5 million for closed corporation HUF 20 million for public corporation, divided into shares Liability is limited to company capital Company with their own legal entity.
1.7. Sources of information
In Hungary, Cosmopolite Collections contacts credit reporting agencies to assess the financial situation of the debtor, including real estate and other enforceable assets.
We combine this with our own phone contacts to get an accurate impression of the debtor’s financial situation and advise on the next steps. It depends on the legal form of the debtor as to whether we are also able to request information from public registers.
All companies have to register with the trade register at a company court, which can be accessed online.
We have direct access to this and other company databases that can provide us with additional information on shareholders, historical developments, balance sheets, associated companies and payment experience.
We continuously monitor the solvency of the debtor in case of any insolvency, so that we can immediately take action to meet the legal deadline for lodging claims.
2. Retention of title
Retention of title is a safeguarding measure. To be used to the advantage of any supplier, it must be agreed upon prior to delivery in written form.
A retention of title clause has to be explicitly written in the contract and signed by both parties before any delivery. The new Hungarian Civil Code implemented new regulations concerning the retention of title.
For the retention of title of real estate, the seller has to register the facts of the retention of title and the name of the buyer with the real estate register.
For the retention of title of movable property, the seller has to register the facts of the retention of title and the name of the buyer with the security register, as well as in an appropriate catalogue. The Civil Code also regulates the legal consequences of missing registrations.
3. Safeguarding measures
In case the debtor is not able to settle a claim in a speedy manner, Cosmopolite Collections can request that the debtor secure the debt in favour of our client.
In Hungary, the following guarantees have the highest importance in business practice:
- An acknowledgement of debt, authenticated by a notary and immediately enforceable in case the agreed payment terms are not honoured Mortgages or assignments of debts or assets
- An absolute guarantee of the debtor’s shareholder(s) and/or associated companies An assignment of the debtor’s claim with the debtor’s absolute guarantee.
4. Legal Collections in Hungary
4.1. General information
The modern Hungarian legal system is composed of public law, which regulates the relations between citizens and the state, and civil law, which regulates the relations between two people or companies.
Entering into legal proceedings is sometimes possible without a prior warning to the debtor.
However, all courts are trying to mediate between creditors and debtors, and, in order to shorten the amicable phase of the legal proceedings, they may ask for proof that all precourt efforts have not been successful.
They will also ask to see all prior correspondence in order to reach a fast and final judgment.
4.2. Legal system
The responsibility of jurisdiction is divided by the matter and/or by the addresses of the parties, and/or by the amount of the case. Significant changes in the legal system and court responsibilities are valid since 1st January 2012 based on Act CLXI 2011.
4.3. Required documents
In order to apply the legal proceedings, Cosmopolite Collections will require copies of the contract, invoices and statements indicating payments and credit notes, which have been paid against the outstanding monies.
In the case of a regular lawsuit procedure, copies of all contractual documentation should be available starting with the contract, orders, order confirmations, delivery notes and invoices.
Every step of the trading relationship between both parties should be provable by documentation.
In case of dispute, all notes of conversations between the creditor and the debtor should be kept and given to our lawyers. In the case of oral negotiations, we require the visit or negotiation reports and the names of any witnesses.
4.4. Payment order procedure
This procedure has to be submitted to the notary, who then sends it to the debtor. The payment order is enforceable if the debtor does not appeal within 15 days after receiving the payment order.
If the debtor appeals the payment order procedure, it will then become a regular lawsuit procedure.
If the debt is disputed and the amount is less than HUF 3 million, then the creditor has to start first with a payment order procedure.
From 1st January 2018, there have been some important changes concerning the data that needs to be provided to the notary in order to start the payment order procedure.
Amongst others, e.g. private entrepreneurs’ data such as dates of birth, places and mothers’ names, will be recorded already at the start of the procedure, otherwise the petition might be rejected.
The regular lawsuit procedure is initiated either directly after the amicable collection has failed due to a dispute by the debtor or directly after the legal dunning procedure if the debtor has appealed.
A written pre-procedure is usually issued. Both the plaintiff and the defendant must exchange opinions and proofs by letter until the judge believes all information needed to make a judgment has been received.
In this case, a hearing is scheduled, during which both parties must be present. After the hearing, the judge sets a date to publish the final judgment, and both parties will be informed about the outcome in writing by the court.
With the changes of the Code of Civil procedure as of 1st January 2018, the terms of suspending the legal proceedings have been changed.
The maximum time frame of suspension of a lawsuit procedure can be four months and it can be requested only up to three times.
An appeal against the judgment is possible, which will trigger a verdict by the court of second instance.
4.7. Debt collection costs in Hungary
Court costs of the payment order process are generally 3% of the claim amount (minimum HUF 5,000 and maximum HUF 300,000) and 6% of the lawsuit debt (minimum HUF 15,000 and maximum HUF 1.5 million).
Court costs of an appeal against the court judgment are generally 8% of the debt (minimum HUF 15,000 and maximum HUF 2.5 million).
The minimum and maximum amounts of court costs are determined by law, and enforcement court costs are generally between 1% and 3% of the claim amount.
Lawyers’ costs are a matter of negotiation, based on the court process and its complexity. Cosmopolite Collections can provide our clients with competitive offers from our external partners.
A cost estimation will be provided on a case-by-case basis should legal action becomes necessary.
4.8. Expected time frame
The average duration of a legal dunning process is between one and three months (in cases without appeal from the debtor), whereas a court procedure can take one to three years or longer, depending on the complexity of the case and the availability of the judge and lawyers on both sides.
4.9 Interest and costs in the legal phase
Extrajudicial interest and costs can be claimed as part of the outstanding monies during the legal proceedings.
The successful claiming of the costs is highly dependent on the court and the judge. In all cases, the losing party has to bear the costs of the legal proceedings. In the case of a legal settlement, the parties bear the costs of the corresponding proceedings in proportion to their prevailing or failing.
5.1. Enforcement in debt
The enforcement procedure is executed progressively. The creditor/executor can block the bank account of the debtor or request payment from the debtor’s salary from their employer.
This type of enforcement requires very specific information, such as bank account details and the name and address of the debtor’s employer.
5.2. Enforcement in movable property
This is the standard procedure where the bailiff visits the debtor to take away movable property that can be liquidated in favour of the creditor.
The bailiff cannot seize the property that is necessary for the debtor’s basic daily life or that enables them to maintain their business activity.
5.3. Enforcement in immovable property
This is the standard procedure if enforcement is not successful in debt and in movable property. If the debtor owns real estate, it is possible to receive a record of the claim in the land register and then either force the attachment and sale or, if there are tenants, force the sequestration of the real estate by court order.
5.4. Expected time frame
Enforcement in monies is usually the quickest procedure if the debt is covered and all necessary information is available.
The expected time frame is between three and nine months.
The time frame of enforcement in movable property and real estate is difficult to estimate, as it depends on the individual course of the case, the available property, the court, possible banks and of course possible buyers.
6. Insolvency proceedings
6.1. General information
Insolvency proceedings – whether regular insolvency, insolvency plan or individual insolvency – are a kind of collective enforcement by all creditors to one debtor. With the start of the preliminary proceedings, all individual enforcement is suspended, and only when the insolvency proceedings do not start will individual enforcement continue.
In spite of numerous changes of the Insolvency Act XLIX of 1, the Hungarian insolvency law still remains ineffective.
The chance of receiving a dividend in liquidation for unsecured creditors – without any special guarantees – is less than 1%. Bankruptcy proceedings (with the aim of reorganisation via settlement with the creditors) can still not reach a significant number in Hungary.
The aim of the bankruptcy procedure is to reorganise the debtor company under strict law control via repayment agreements with all the creditors that lodged their claims within the 30-day period after the official notification.
Liquidation procedure A liquidation procedure can be initiated by the debtor company themselves or by a single creditor.
It is mainly an administrative legal proceeding that aims for the liquidation of a company; therefore, the initiation of this procedure has strict legal requirements and is only applicable for claims without any prior dispute.
A petition has to be filed to the court along with the documents proving the legal base of the claim. If the petition is judged as valid, the court sends an official notice to the debtor to pay the creditors’ claims; otherwise, insolvency will be declared. In case the debtor acknowledges the debt, the court can grant a further payment extension of 45 days.
If the debtor fails to meet the deadline set by the court or the parties could not agree on any settlement to suspend the International Debt Collections Handbook – Twelfth Edition 118 Table of contents Hungary liquidation procedure, the insolvency will be officially published.
In the debt collection practice, the liquidation procedure can be an effective tool to put a final pressure on the debtor for payment in case their company is still solvent. With the changes of the Code of Civil procedure as of 1st January 2018, the terms of suspending the legal proceedings have been changed. Previously within the liquidation procedure, the maximum time frame of suspension was six months, this has been reduced to three months and it can be requested only up to three times.
After the insolvency is published, the aim of a regular insolvency proceeding is to pay out the creditors by liquidating the assets of the debtor company. At the end of the process, the debtor company will be removed from the company register. After the official publication of the insolvency procedure, the creditors can then lodge their claims within a given deadline and take back any goods delivered under valid retention of title. For goods in stock, the liquidator can choose whether to pay the original price to the creditors or to return the goods. The insolvency practitioner can either accept a lodged debt or dispute it.
If the claim is disputed, the creditor may only file a claim in court to prove the justification of their claim when further documentation does not convince the insolvency practitioner to confirm the debt.
The registration fee to lodge any claim in liquidation (payable to the competent court) is 1% of the claim amount, with a minimum of HUF 5,000 and maximum of HUF 200,000. If the creditor does not want to lodge the claim within the insolvency procedure and pay the 1% registration fee, the creditor can request the insolvency practitioner to issue a declaration of irrecoverability, which is required by the tax office to write off the claim. The fee for the declaration is HUF 2,000 plus VAT (27%). Cosmopolite Collections can provide our clients with the monitoring of any potential insolvency in order to be able to lodge claims within the required term and to represent the creditors in the process.
6.3. Required documents
In order to lodge a claim, Cosmopolite Collections need:
- An original power of attorney
- Copies of invoices.
- In case of any dispute raised by the liquidator:
- Copies of contracts
- Copies of orders, confirmations and delivery notes
- Copies of general conditions of sales, should there be any
- Copies of any other correspondence that may verify the claim.
6.4. Expected time frame and outcome
The deadline to lodge a claim in an insolvency procedure is 40 days calculated from the publishing date of the process.
The liquidator confirms the registration of the claim after receiving all relevant documentation – the closing balance sheet, analytics, inventory list and the likes – from the management of the debtor company. In Hungary, all creditors are ranked into categories from A to H.
Unsecured creditors are ranked in category F, and all categories between A and E (e.g. banks, employees and authorities) have to be paid out in full before unsecured creditors can get any dividend, unless a full and final settlement has been agreed with the creditors.
Within 75 days after the publishing of the procedure, the insolvency practitioner has to arrange a creditors’ meeting.
The whole duration of a liquidation procedure is between three and seven years.
A simplified insolvency procedure takes approximately one to two years. In this case, there are no assets or documents, which enable the insolvency practitioner to carry out the insolvency procedure in a regular way.
6.5. Limited companies
Liability is generally limited to company capital. However, in special lawsuit procedures, the liability of (even previous) shareholders and management can be judged by the court if any malice can be proved. In the case of such a final court decision, (previous) shareholders and management are liable for the insolvency losses with their personal assets.
An additional consequence of such a court decision is a ban on holding a shareholder or management position in another company or a new company for five years.
6.6. Unlimited companies / individuals
For unlimited companies, liability is not limited. Any unlimited shareholder is liable for the insolvency losses with their own assets. Individual insolvency does not exist in the Hungarian legislation.
6.7. Pool of creditors
In insolvency and bankruptcy proceedings, creditors can join in a pool agreement with the aim of representing and protecting the interests of the creditors during the proceedings and controlling the activities of the insolvency practitioner.
The insolvency practitioner can dispute and claim back payments by the debtor carried out prior to the publishing of the insolvency. If the insolvency practitioner disputes these payments with success in a lawsuit procedure, the creditors have to refund the insolvency practitioner and can only lodge the corresponding debts instead.
7. Arbitration and mediation
If the creditor and the debtor agree on an alternative dispute resolution, there are two options available: arbitration or mediation. Arbitration in Hungary is organised by the Chamber of Industry and Commerce (‘Kereskedelmi és Iparkamara’).
Agreeing to arbitration has advantages compared to a regular legal proceeding; it is quicker, as the courts are less occupied and there is no appeal, it is more cost-efficient and the hearing and process are confidential. The decision of the arbitration can be enforced as a final court decision.
The other way of solving a dispute is by mediation or conciliation proceedings, which focus on finding the root cause of the dispute in order to find constructive agreements and solutions for both the creditor and the debtor. Mediation or conciliation is carried out by professional mediators. There are now increasingly more attorneys who specialise in mediation. The new agreement is not a judgment, but a kind of contracts. Mediation activities are regulated by Act LV of 2002.