How To Close A Company in Hungary

The procedure for liquidation of a company is highly formalized, comprising several stages. Dissolution of the company by way of liquidation is possible only if the company is solvent and has sufficient funds available to complete the process of liquidation (or if these will be financed by the shareholder). This means that funding must be available to satisfy the rights of creditors and shareholders, and the company seat and contact information must be kept available throughout the liquidation period. The process in practice last for between 6-12 months.

In order to ensure that the Hungarian company is closed in the proper manner and in the quickest possible timeframe you will need to follow the steps below:

• • A meeting of shareholders is convened and held; resolutions approving the opening of the liquidation and appointment of a liquidator are passed (the liquidator can be an agent or another person appointed to handle the procedure, so you can authorize us via POA to deal with this for you)
  • Documentation is filed at the company registration court.
  • The company's name is extended by a suffix "in liquidation"
  • The liquidator assumes the role, duty, responsibilities and liabilities of the board of directors.
  • An announcement regarding the liquidation is placed in official publications inviting creditors to come forward.
  • A period of 40 days from the date of publication of such announcements passes; since the publication is initiated by the trade registry (not us), up to 30 additional days may pass between our notification of the trade registry and the actual publication date.
  • The liquidator causes the company to satisfy the claims of creditors
  • Following such 40 days period and in the event that the liquidator is satisfied that all creditors' claims are sufficient, the liquidator may start actions to close the company.
  • Further shareholder resolutions, balance sheets and filings at court are required.
  • The company must continue, until the moment of its liquidation, to satisfy all normal company secretarial and compliance obligations of the company, including maintenance of accounts, tax and other filings.
  • Liquidation proceeds may be distributed only at the close of the liquidation

ADVANTAGES OF LIQUIDATION

• • This is the only straightforward way of ensuring that your company is closed in the correct manner
  • You have the "upper hand" in negotiating with any creditors you may have, so it is possible to reach amicable solutions and avoid legal conflict

DISADVANTAGES OF LIQUIDATION

• • Expensive but the only way that a company can be dissolved in the most efficient manner
  • If the company is not dissolved in the proper manner then this could take time and money as you can incur unwanted fines and lawsuits. Please contact us on +44 (0)203 114 5113 for assistance and fees for winding up your company in Hungary

The CEO of the company is legally obligated to call an assembly of the shareholders if:

• • The capital of the company is reduced to less than 50% of the starting capital due to losses, or
  • The company has become insolvent and unable to pay its dues towards creditors, subcontractors and/or employees.

If this happens, the shareholders must either agree to provide additional funds, or take any other step that may make the company's further operation possible. (In this, the shareholders must consult the articles of incorporation to see what options are available in the particular company at hand.) If there are no options and there is no buyer for the company, the assembly will decide to close down the company and declare bankruptcy. Once such decisions are made, they must be enacted within no more than 3 months' time. It is the CEO's liability to determine when bankruptcy is threatening the company and to convene the shareholders at once.

What happens if a company becomes insolvent?

• • In the general case, the directors do not have financial liability for the company's debts unless they can be held criminally liable (for mishandling the company's funds). Such liability lawsuits are usually initiated by the shareholders (if different from the directors) or by creditors, and can only affect the directors' personal assets if it can be proven that the directors used the company's funds for their own benefit and by doing so caused the company's insolvency.
  • In the event that a bankruptcy proceeds, court appointed receiver carries out the process of gathering in assets and satisfying liabilities. The State Budget (taxes etc) the court, the receiver and staff are among the preferred creditors.
  • To close the company, the shareholders would need to consider financing the company, thereby making it solvent and to carry out the liquidation process described above. Bankruptcy is only a possible option if either the shareholders do not possess the funds to make the company solvent again, or the articles of incorporation do not make an injection of funds possible.
  • Failure to act either to close the company or to ensure its continued solvency exposes the directors.
  • Please contact us urgently if this is the case and our insolvency lawyers will assist you.

For both opinions it is important to take care to protect the assets of the business, to conform with the liquidators wishes and to act responsibly. Please contact us for further information and advice as to how to proceed.