Hungary: Arbitration Act and Fiducary securities in insolvency
Bill on the new Hungarian Arbitration Act
A bill on the new Hungarian arbitration act was presented to the Parliament in April. The new act will provide a more detailed regulation taking into account the UNCITRAL Model Law. However, the most fundamental change to be introduced by the new act is a structural one. Currently there are several permanent courts of arbitration. The most important are the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry, the Energy Arbitration Court and the Money and Capital Market Permanent Court of Arbitration.
The new act will provide (with certain minor exceptions) that there will be only one permanent court of arbitration, namely the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry. All other courts of arbitration will cease to exists on 1 January 2018. The bill provides that if there are ongoing procedures on this date, they will continue at the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry. The bill further provides that clauses referring a dispute to a court of arbitration, which no longer exists, shall be interpreted as if it referred to the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry.
The bill is expected to be passed by the Parliament at the end of May. The new law will be applicable to procedures initiated after 1 January 2018.
Fiducary securities in insolvency
When the new Hungarian Civil Code entered into force in 2013, it provided that fiduciary securities, with certain exceptions, shall be null and void. The reason for the new rule was that the legislator realised that it is not logical to provide detailed, mandatory provisions for the secured creditors’ rights and obligations in case of charge, if the creditor can obtain better position by choosing fiduciary securities. One of the most important benefit of fiduciary securities were that they did not belong to the insolvency assets of the debtor, thus the creditor could enforce his claim even if the debtor went under liquidation.
However, the legislator amended the ban on fiduciary securities in 2016 and provided that such agreements are null and void only insofar as they provided by consumers. Sadly, parallel to the amendment of the Civil Code, the insolvency code was not amended, therefore the beneficial treatment of such creditors remained.
The Hungarian Parliament is currently discussing a bill for the amendment of the insolvency act, which would, among other provisions, solve this problem. The bill provides that the most important fiduciary securities shall be registered in the land registry or the security registry, otherwise the creditor would not have the right to enforce his claim after the opening of insolvency or liquidation.
The bill is expected to be adopted in May, and the amendment likely to enter into force in August 2017.
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