Security over Collateral. HUNGARY Nagy és Trócsányi

Transcription

1 Security over Collateral HUNGARY Nagy és Trócsányi CONTACT INFORMATION Dr. Viktória Szilagyi Dr. Péter Berethalmi Nagy és Trócsányi H-1126 Budapest, Ugocsa utca 4/B szilagyi.viktoria@nt.hu 1. Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. [Applicable law: Sections 114 (2)-(3) and 252 of the Act IV of 1959 on the Civil Code of Hungary (Civil Code)] Assets in general, including any possess-able things as well as transferable rights and claims may be subject to a collateral or may be encumbered in other ways. In respect of certain assets however -- particularly real estate belonging to exclusive state or municipality property -- the right to encumber may be excluded by law. If the exclusion is provided by law then encumbering the asset in question shall be null and void. The right to encumber assets may be excluded also in an agreement, but only in the event of the transfer of ownership and only for the purpose of securing the right of the transferor or another person in respect of the thing. With regard to real estates, the restriction on transfer and encumbering shall be indicated in the real estate register. Encumbering contrary to a prohibition of encumbrance stipulated in an agreement shall be null and void provided that (i) the prohibition has been indicated in the real estate register, or (ii) the person claiming a right for disposition has otherwise acted in bad faith, or (iii) the disposition did not include any consideration.

2 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? [Applicable law: Law No. 13 of 1979 on private international law] [Choice of law] The law chosen by the parties when concluding the agreement or at a later date applies to the agreement. In the absence of any such specified law, the law applicable to each agreement is determined by the relevant legal instrument on international private law. In case of an agreement related to credit the law of the seat of the service provider applies. Applicable law can not be chosen in respect of the security agreement in itself, as Hungarian law provides that the law applicable to the underlying agreement shall apply in respect of the whole contractual relationship, including security agreements. In this respect it does not matter if the security itself is located abroad or is governed by foreign law. Regarding the market practice it is common to choose English law, although, if the investment is financed locally financing agreements are governed by Hungarian law. It is common to use notarized documents when concluding finance agreements. [Choice of forum] As a general rule, in respect of property-related legal disputes and in contract law concerning any potential legal disputes in connection with a specific legal relationship, the parties may freely stipulate the jurisdiction of a specific court. However, the jurisdiction of the Hungarian court is excluded in connection with security agreements those establish mortgage on real estates, if the real estate is located abroad, and in connection with the foreign enforcement of security agreements. Contrarily, only the Hungarian courts has exclusive jurisdiction in connection with security agreements those establish mortgage on real estates, if the real estate is located in Hungary, and in connection with the Hungarian enforcement of security agreements. [Treaties] Hungary is a party to the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (1968) and also to the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (1988). 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? [Applicable law: Civil Code Section 266; Ministerial Decree No. 11/2001 (IX.1.) on the detailed rules of the register of mortgages and charges Section 12 (2)]

3 Floating charge is accepted in Hungary; this type of security is governed by the Civil Code since For the creation of a charge on the assets of a legal entity, whether on the whole or on a strategic business unit, without specifying the particular objects, rights and receivables that comprise it. The security agreement must be concluded in writing, in the form of a notarial deed, and must be registered by the Hungarian Chamber of Public Notaries; the floating charge goes into effect when it is registered. Registration fee of HUF 5,000 is payable by each charge. This type of security also applies to any and all property that is acquired by the obligor after the contract has entered into effect, commencing on the date on which the obligor acquires the right of disposition over such property; the charge ceases, however, if and as soon as the property concerned is no longer in the security provider's possession. In the case of a floating charge, if the secured claim is due but not paid, the secured party is entitled to convert (crystallize) the charge into a charge on specific items of property through a written statement to this effect, and to seek satisfaction through foreclosure in respect of the specified items of property. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (a) Aircraft; (b) Bank Accounts; (c) Animals, Crops (in ground and severed) and Timber; (d) Equipment; (e) Intellectual Property; (f) Inventory; (g) Leases; (h) Mineral Interests, including Hydrocarbons; (i) Promissory Notes and Chattel Paper; (j) Real Estate; (k) Receivables (credit rights under contracts or invoices); (l) Rights under Contracts (excluding Receivables); (m) Shares (in book-entry and certificate form and other securities); (n) Vessels; (o) Vehicles; and (p) Business as an ongoing concern. [Applicable law: Sections /A of the Civil Code; Section 12 (6) of the Act XCVII of 1995 on Aviation; Section 11 (3) and (6) of the Act XLII of 2000 on Shipping; Section 20 of the Act XI of 1997 on Copyrights; Section 25 (2) of the Act XXXIII of 1995 on Patents; Act XVI of 1999 on Concession] The following grouping is based on the types of securities that can be created in consideration of the types of assets referred to in the question. (A) Real estate mortgage - available in case of real estate (point j) and crops in ground (point c).

4 Real estate may be charged as a security only in the form of a mortgage. The mortgage covers also crops in ground as accessories of the real estate. The mortgaged property remains in the possession of the mortgagor, who is entitled to use and utilize the property. The mortgage agreement is valid only if concluded in writing and in the form required for registration in the Land Register. The mortgage goes into effect when it is registered. Registration takes a maximum of 30 days as from the submission of the request. Registration duty of HUF 12,000 is payable by each mortgage. Priority is determined according to the date of registration; if more than one request is submitted on the same day, the priority is determined according to the date on which the mortgage agreement was concluded. (B) Mortgage on movables - available in case of aircraft (point a), animals, crops severed and timber (point c), equipment (point d), intellectual property (point e), inventory (point f), vessels (point n), and vehicles (point o). For the creation of a mortgage on physical objects other than real estate the security agreement must be concluded in writing, in the form of a notarial deed, and it must be registered by the Hungarian Chamber of Public Notaries. The mortgage goes into effect when it is registered. Reservation of the place for the mortgage in the register is immediate as the conclusion into a notarial deed. Registration fee of HUF 5,000 is payable by each mortgage. The asset serving as security remains in the possession of the mortgagor. If a mortgage is created on several properties, or if the pledged property cannot be labelled in itself - like equipment, crops severed and timber and inventory - the pledged property or the group of properties may be described by type and quantity or by elaborate description. Special rules apply in respect of aircraft, vessel and intellectual property (however, this latter does not qualify as movable thing). In respect of such assets only mortgage on movables (and an independent lien) is available as security. In case of aircrafts the mortgage agreement must be concluded in writing and it must be registered by the Hungarian Aviation Authority. In case of vessels the mortgage agreement must be concluded in writing, in the form of a notarial deed and it must be registered by the Hungarian Shipping office. Mortgage may be established on patents, copyrights; the security agreement must be concluded in writing and must be registered by the Hungarian Patent Office. (C) Pledge on movables - available in case of animals, crops severed and timber (point c), equipment (point d), inventory (point f) and vehicles (point o). To create a pledge on movables it is necessary to conclude a security agreement and to hand over the pledged property to the secured creditor or to the possession of a third person (pledge trustee). No registration is required; no duty or other fees need to be paid. (D) Charge on rights and receivables - available in case of receivables (point k), rights under contract (point l), leases (point g). The objects of such a charge may also include future rights and receivables that will accrue to the obligor. The rights and receivables charged may be specified through an

5 elaborate description. The security agreement must be concluded in writing, no registration is required and no duty or other fees need to be paid. (E) Floating charge - available in case of a business as ongoing concern (point p). For the creation of a charge on a business as ongoing concern, whether on the whole or on a strategic business unit the security agreement must be concluded in writing, in the form of a notarial deed, and must be registered by the Hungarian Chamber of Public Notaries. Registration fee of HUF 5,000 is payable by each charge. This type of security also applies to any and all property that is acquired by the obligor after the contract has entered into effect, commencing on the date on which the obligor acquires the right of disposition over such property; it ceases, however, if and as soon as the property concerned is no longer in the security provider's possession. (F) Security deposit - available in case of bank accounts (point b), promissory notes (point i, chattel papers are not used in our jurisdiction) and shares (point m). A security deposit, as financial collateral, may be provided under an agreement to secure a claim in the form of money, a claim on a bank account, or securities, and is effective upon the handover of the collateral. No registration is required and no duty or other fees need to be paid. (G) Independent lien A lien can be created so as to encumber the charged property without any secured claim. In this case, the lien holder is entitled to seek satisfaction up to the amount specified in the agreement solely from the property to which the lien pertains. To satisfy the lien holder, the independent lien must be terminated by notice from the obligor or the lien holder. Independent liens are transferable or they can be converted into a secured charge and vice versa if so agreed by the parties. (H) Other - Mineral Interest as Hydrocarbons (point h). The treasures of the earth (which include oil, gas, and other minerals, including hydrocarbons) and mining rights are under the exclusive ownership of the state. The objects owned exclusively by the state may not be commercially traded: any attempt to alienate or encumber the objects or the rights of ownership specified above is to be deemed null and void. However, the state, under a concession agreement is entitled to transfer the possession, use, and the right to collect the proceeds, of an object owned exclusively by the state to resident and foreign private parties (natural persons and legal entities). The rights and obligations of the private parties who have acquired such rights in connection with objects owned exclusively by the state are governed by the given concession agreement (including entitlement to encumber the assets). There is also another way to acquire rights in respect of objects owned exclusively by the state. The trustee state authority is entitled to transfer the trusteeship of state property items to other resident or foreign natural persons and legal entities under an agreement or a legal instrument. In such a case, the private parties may exercise the rights and fulfil the obligations of the owner by virtue of civil relations, but the private parties are not entitled to transfer these items, and they may not pledge the items or grant usufruct on them.

6 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? [Applicable law: Sections /A of the Civil Code; Law No. 13 of 1979 on private international law] In respect of the securities available on each types of assets we refer to the grouping in answer 4. [General] As a general rule, in case of mortgages, pledge and charges, satisfaction from the property that is subject to the collateral takes place on the basis of a court order or writ of execution. If the mortgage or pledge is registered under the provisions of law, the registration serves as authentic proof of the existence of the security. If no registration is necessary, the security agreement can be concluded in the form of a notarial deed. The notarial deed, as a public document strengthens the beneficiary's capacity to enforce the collateral, because, in accordance with the relevant law on judicial enforcement, the court can affix a writ of execution on a notarial deed, and as a result of this the claim based on the security agreement will be subject to direct enforcement, i.e. no court procedure is necessary to declare the beneficiary s claim. In contrast to judicial enforcement: (i) the parties may agree in writing to sell the property that has been pledged as collateral, while setting a minimum price and a deadline for the sale; (ii) the parties may agree in writing to permit the security holder to appoint a third party who is engaged, either on a commercial or ex-officio basis, in providing loans against security or in organizing auctions for the sale of property; (iii) the parties may agree in writing that the secured creditor is entitled to sell the assets directly, if either the asset has an officially listed price or an acknowledged market price, or the secured creditor is involved in granting mortgage-backed loans in Hungary. The parties must also agree on a deadline and a minimum market price for the sale; (iv) after default, and after a right to enforcement has arisen, the debtor and the secured creditor may agree that the secured creditor will acquire title of ownership to the asset. [Floating charge] In the case of a floating charge, if the secured claim is due but is not paid, the secured party is entitled to convert (crystallize) the charge into a charge on specific items of property through a written statement to this effect, and to seek satisfaction through foreclosure in respect of the specified items of property. [Charge on receivables] In the case of a charge on receivables, if the claim becomes due before the charge is to be satisfied from the property, the obligor of the claim must perform directly to the security holder and the claimant together. If the claim becomes due after the charge to

7 be satisfied from the charged property, the obligor of the claim must perform directly to the security holder. [Security deposit] As regards security deposits, on the due date for performance of the relevant financial obligations the secured creditor is able to enforce the claim directly, without a court order, from the financial collateral, if it is cash, money in a bank account, shares or other financial instrument whose market price is listed publicly or can be determined at the time independently of the parties. In addition, in the case of security provided using other forms of collateral or financial instrument, no court order is required for enforcement if the parties have so agreed in the arrangement and have stipulated the method of valuation of the financial instruments. [Enforcement in case of securities governed by another jurisdiction] As mentioned in Answer 2 Hungarian courts cannot act in connection with security agreements those establish mortgage on real estate, if the real estate is located abroad, and in connection with the foreign enforcement of security agreement. I.e. if the security itself is located in a foreign country then the relevant foreign authority of the must be contacted in the scope of international legal aid. The decision of the foreign authority is recognized in Hungary without any further procedure. The decisions of foreign courts and other foreign authorities are recognized in Hungary if (i) the jurisdiction of the court or authority is deemed legitimate under the rules of jurisdiction of Hungarian law, (ii) the decision is construed as definitive by the law of the state in which it was made, and/or (iii) there is a treaty or reciprocity agreement in effect between Hungary and the state in which the court or authority resides. The Minister of Justice of Hungary issues a statement regarding the above reciprocity, and such statement is binding on the Hungarian courts and other authorities. The relevant law also defines the circumstances under which the decisions of foreign courts and authorities cannot be recognized, e.g. if a Hungarian court or other Hungarian authority has exclusive jurisdiction over the matter to which the decision pertains. If the conditions required for recognition of an adverse foreign decision in Hungary prevail, such decision is executed in accordance with the corresponding Hungarian laws. The Hungarian state qualifies as a legal entity in business relations, and is represented by the Minister of Finance. In such relations the state is subject to the same rights and obligations as other entities and natural persons: it is entitled to sue, or it may be sued, and claims may be enforced against it. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? [Applicable law: Section 265 (1) of the Civil Code] In case of pledge on movables (see point (C) in answer 4 above) a trustee can be used by the parties; in case of other types of securities the subject to the security remains in the debtor s possession therefore trusteeship is not possible under such circumstances. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted?

8 [Applicable law: Sections 40 (1)-(2), 49/D, 57 (1) of the Act XLIX of 1991 on Bankruptcy Proceedings and Insolvency Proceedings ( Insolvency Act )] [Regarding suspect periods] In insolvency proceedings certain transactions entered into by the debtor may be challenged during the insolvency proceedings, but the application should be made within one year of the commencement date of the insolvency proceedings. The suspect period depends on the type of the challenged transaction. The creditor or the liquidator may challenge (i) contracts concluded by the debtor within five years preceding the commencement date or thereafter, or his other commitments, if intended to conceal the debtor's assets or to defraud any one creditor or the creditors, and the other party had or should have had knowledge of such intent; (ii) contracts concluded by the debtor within two years preceding the commencement date or thereafter, or his other commitments, if intended to transfer the debtor's assets without any compensation or to undertake any commitment for the encumbrance of any part of the debtor's assets, or if the stipulated consideration constitutes unreasonable and extensive benefits to a third party; (iii) contracts concluded by the debtor within ninety days preceding the commencement date or thereafter, or his other commitments, if intended to give preference and privileges to any one creditor, such as the amendment of an existing contract to the benefit of a creditor, or to provide financial collateral to a creditor that does not have any. [Regarding claw-back] Under the Insolvency Act claw-back is also possible; the liquidator, on behalf of the debtor, is entitled to reclaim any service the debtor has provided within a sixty-day period preceding the commencement date or thereafter, if it was provided to give preference to any one creditor and if such service is not usually provided under normal circumstances. Prepayment of a debt is, in particular, considered as giving preference or privileges to any one creditor. [Regarding preference over security granted] During the liquidation proceedings, where a mortgage, pledge or charge was established prior to the opening of the liquidation proceedings, -- with a few exceptions -- the liquidator shall be allowed to deduct form the incomes of the sale of the property subject to the security (i) the costs of safeguarding -- including maintenance --, (ii) costs of sale of the property subject to the security, and (iii) the liquidator s fee and shall use the remainder to satisfy the claims for which such property was pledged or charged - immediately upon completion of the transaction. Contrarily, in the case of a floating charge, fifty per cent of the incomes from the sale of a property subject to the security shall be used exclusively to satisfy the claims secured by the charge up to the value of the claim, provided that the charge was established prior to the time of the opening of liquidation proceedings. The remaining fifty per cent shall be subject to the general satisfaction order provided by the Liquidation Act, where

9 claims secured by floating charge have preference over any other rights or claims, except for the costs of the procedure. The above provisions shall also apply to any claim that is limited to seek sufferance for satisfaction from the property (security deposit, independent lien) and to claims which are satisfied by judicial enforcement or for which a writ of enforcement has been registered before the opening date of liquidation. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? [Applicable law: Sections 41 (1), 43 (1) and 57 (1) of the Insolvency Act] Subordination can take place by virtue of law or by agreement among the creditors. In insolvency proceedings unsecured claims are subordinated to secured claims and also to some other claims (procedural costs, taxes, public dues, etc.) by virtue of law. Unsecured claims basically fall under the same judgment, i.e. if the assets of the debtor would not cover all unsecured claims such claims shall be satisfied proportionally between the unsecured creditors. The Insolvency Act also provides that during insolvency proceedings the creditors and the debtor may, at any time, conclude an arrangement before the final liquidation balance sheet is submitted. In the course of negotiations the company under liquidation and the creditors may agree on (i) the order for the settlement of debts, (ii) rescheduling payments, (iii) the proportion and manner of the satisfaction of debts, which include also an arrangement regarding the subordination of one or more creditors claim. The Insolvency Act provides detailed provisions regarding the requirements of the above arrangement. Nevertheless, outside the scope of insolvency arrangements the creditors are not prohibited from subordinating their claims by an agreement between two or more creditors. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) [Applicable law: Section 251 (4) of the Civil Code] According to the general rules of Hungarian civil law in case of transfer (assignment) of receivables (e.g. an underlying credit) the collateral (mortgage, pledge, charge or security deposit) shall also be transferred to the transferee automatically, i.e. the conclusion of new security agreements is not necessary (parties are, however entitled for the revision of the collateral system in respect of the underlying credit). On the other hand, the security cannot be transferred (assigned) in itself, except for the case of independent lien. In accordance with the above in case of transfer (assignment) the original collateral exists continually and it also reserves its place in the satisfaction order (in respect of other collaterals on the same asset and also in the event of insolvency proceedings). In addition, under Hungarian law novation qualifies as an amendment to the underlying credit agreement therefore the original collateral system would not be concerned. If the amount of the credit, other payment conditions or the person of the debtor or the creditor changes however, then the revision of the collateral

10 system may become necessary - this may belong to the discretion of the parties (characteristically on the creditor). 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? No. As described in Answer 9 a collateral cannot be assigned in itself, not even upon the default of the debtor, it can be assigned or transferred with the underlying credit. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? [Applicable law: Sections of the Civil Code] As mentioned in Answer 5 in case of mortgages, pledge and charges, satisfaction from assets subject to the collateral in general takes place on the basis of a court order or writ of execution. Agreements that were concluded before the claim is due and grant the secured creditor the right to acquire ownership of the property in the event of failure to fulfill the obligation shall be null and void. After default, and after a right to enforcement has arisen, the debtor and the secured creditor may agree that the secured creditor will acquire title of ownership to the asset. As regards security deposits, on the due date for performance of the relevant financial obligations the secured creditor is able to enforce the claim directly, without a court order, from the financial collateral. See also Answer 5.