04.03.2007
Debt Collection Hungary kft

Following the change of regime in Hungary, Hungarian businesses and enterprises were given greater opportunities to establish business contacts with foreign firms. As a result, the number of foreign investors in Hungary, and foreign business partners of Hungarian firms, has substantially increased in recent years. With Hungary's joining the European Union the last remaining hurdles and barriers are being eliminated in the area of foreign trade and international business transactions. Thanks to the free movement of goods, capital and individuals, further growth are expected in business relations of Hungarian companies with EU members.

In any business relation with a Hungarian entity it may, sadly enough, occasionally occur that the Hungarian party is unable or unwilling to meet its payment obligation. Counsel for the foreign firm in Hungary has in these cases the following legal remedies available for the enforcement of his Client's claims:

Extra-judicial enforcement proceedings

Examination of public corporate records

As a first step, it is recommended to check the corporate records (the firm's legal structure, its financial situation and balance sheet of the preceding year, the possible existence of pending liquidation proceeding) as such may appear on the public register. Any data so obtained should be reduced to writing. In the event the Hungarian company is under liquidation proceedings, it is imperative to report as quickly as possible the pertinent data to the trustee acting for the company to enforce the claim. The deadline for reporting the claim is 40 days within the date of announcement in the Official Gazette of the decree ordering the liquidation.

Demand letter for settlement of the indebtedness

Where the company is not under liquidation proceeding, local counsel in possession of the debtor company's particulars issues a demand letter, allowing the debtor a last, eight-day term, within which to settle its obligation.

In case the debtor company does not in its response deny on principle the validity of the claim, settlement negotiations may ensue. If, upon conclusion of the negotiations the parties reach an agreement and execute a writing to that effect, it is recommended that the document be duly notarised, whereupon execution may follow without resort to court. If the debtor fails to make good on its payment obligation, or not be willing to continue with settlement negotiations, enforcement of the claim through regular judicial process is unavoidable.

Judicial process toward enforcement of the claim

Where out-of-court proceedings fail to produce results, the remedies available are either by way of injunction, civil suit or arbitration. The suit filed against the debtor company in order to enforce the claim is to be lodged with a court of competent jurisdiction. The competence of the court is determined by the defendant's domicile; however, the parties in their contract may agree on a forum of choice as having exclusive jurisdiction over the subject matter.

Proceeding on court orders of payment

If the debtor company does not contest the claim or if the claim is of a lower value, it is more advisable to seek a court order of payment to enforce the claim. In this case, upon initiation of the proceedings, a fee of 3 % of the amount claimed (minimum of HUF 3.000 and a maximum of HUF 450.000) is to be disbursed. If the debtor company refuses to obey the order for payment, the proceedings are to be transformed into a civil suit. The condition to turn the matter into a civil suit is the disbursement of an additional 3 % of the amount in controversy, as a supplement to the 3 % fee already disbursed.

The civil suit

The basic fee upon initiation of the civil suit is 6 % of the amount (minimum HUF 7.000; maximum HUF 900.000). The deadline for filing notice of appeal from the decision of the court of first instance is 15 days counted from the date of receipt of the decision. Court costs on the appellate level amount to 6 % of the amount in controversy.

Court costs

Hungarian courts recognise primarily written substantive evidence as being of probative value. Documents filed with the court must be translated into Hungarian and duly authenticated. Translation and authentication of documents used in judicial and administrative matters is the exclusive competence of a government agency. Fees are set officially and run approximately EUR 30 per normal letter-size page of Hungarian text. During evidentiary proceedings the parties are allowed to enlist the services of judicial experts where fees and costs, payable in advance, are the responsibility of the initiating party.

Naturally, in all cases, the court requires the losing party to reimburse the winning party all of its costs and expenses that the latter had incurred in the matter (e.g. judicial experts, translations, etc.). This applies equally to the winning party's attorneys fees in all instances. The relevant Hungarian regulation allows the winning party, upon petition to the court, to recoup its attorney's fees as per the retainer agreement as well as all attendant costs thereby incurred. The court is obligated to take into consideration the retainer agreement and corresponding invoices but nevertheless has the discretion and the right to order reimbursement of a lesser amount than provided under the retainer agreement and expenses. Unfortunately, in view of the above, there is no guarantee for full reimbursement.

Execution of judgment

Should the losing party fail, within 15 days of receipt of written notice of valid judgment ordering settlement of its obligation to make payment, and where the obligee and obligor both have bank accounts in Hungary, the obligee may apply to the obligor's bank to have the judgment amount transferred to his account (order of collection).

In the event obligor has no funds on his account or, for some reason, collection proceedings are not possible, enforcement proceedings are to follow. Filing fees on these proceedings (1 % of the judgment amount, minimum HUF 3.000; maximum HUF 450.000) and bailiff's fees are to be deposited by the petitioner in advance. Of course, in the end, the debtor company is obligated to reimburse these outlays.

Pursuant to Hungarian regulations foreign companies may enforce in Hungary judgments handed down by foreign courts against Hungarian defendants provided that the State in whose territory the judgment was brought has a treaty with Hungary respecting mutual enforcement of judgments or in cases where reciprocity exists, or where the decision is not in conflict with Hungarian law.

Hungary is, among others, a member of the 1958 New York Protocol on recognition and enforcement of judgments by foreign arbitration boards thus enabling foreign companies to enforce their claims in Hungary. Furthermore, Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters is to be applied as of 01 May 2004 in Hungary as well.