Doing Business and Collecting Debts in Hungary

Should you have outstanding debts in Hungary or should you plan to do business in the country, there are a few things you might want to consider first.
Hungary is an OECD high-income, diverse economy and it is the 15th most complex economy according to the Economic Complexity Index. It is the 57th-largest economy in the world (out of 188 countries measured by IMF) with $265.037 billion output, Hungary has an economy tilting heavily towards export with a profound accent on foreign trade. Consequently the country is the 36th largest export economy in the world. In order to understand the legal market and the environment of debt collection in Hungary, one must not only look at the legal system itself, but at the business culture as well.

Cultural differences and centralization

The business culture can be divided into two different segments. First of all, we can talk about the traditional Hungarian business atmosphere, where people usually interact only with their associates and with their closest network. They are usually a closed group of people, they tend to be somewhat hostile towards outsiders and unforgiving towards mistakes. This is usually the case in every part of Hungary except for Budapest. It must be noted that out of the 10 million Hungarians, roughly 3 million – either reside or do business – in the Budapest metropolitan area. This means that the country is incredibly centralized and the business life is almost entirely in Budapest. Tenders, big projects, all the serious law firms and companies are registered and operate mostly in Budapest.

From a legal, banking and – most importantly – debt collection point of view this also means that the authorities, banks or even the courts in the capital are over-encumbered and work at a heavy load. In the countryside (in this sense anything else other than the capital) people tend to react slower and pay later. As for the capital, it is greatly influenced by international companies and organizations, traces of globalization can be found.

Better safe than sorry

Should you intend to do business in Hungary, you may want to check the company registry, which is free and easily accessible to everyone. The official national company registry is called E-Cégjegyzék. If a company has (after its name) V.A., F.A., CS.A. addition to it, then it is under (in)voluntary insolvency proceedings and creditors should not engage in a business relationship with it. If a company does not appear here even after several search attempts then it is likely that it does not exist. Whenever you intend to conclude a contract always ask for not only the company name, company VAT number, and registered seat, but also the name of the representative(s), address and personal ID number of them. This increases your chances of resolving a dispute and forcing your debtors into paying their debts. Unfortunately it is quite common that debtors use fake business names and addresses, therefore even a short background check on the aforementioned website can achieve wondrous results. Even though that mainframe of this database is in Hungarian, foreign investors should not shy away from it, because the interface is simple and user-friendly. You either type in the name of the company or its registration – alternatively VAT – number and you hit enter. After a quick CAPTCHA you are ready to go.

What to watch out for when dealing with debtors

Sadly, even with the assistance of such measures it can happen – more often than not – that a debtor decides to completely ignore their contractual obligations and leave you empty handed. From this moment on, there are a handful of smart steps you can take to ensure the recovery of this outstanding amount. Initially you will want to begin with a notification to the debtor, sent by registered mail and e-mail as well, followed quickly by a call. Chances are that they might not pick up or it goes to voicemail. In case of the latter, leave a polite, calm message explaining the situation and enquiring about the reason for their late-payment. Always keep record of every action you take, as these may be used as evidence in a court proceeding, if the matter escalates further.

Before this however, as a preliminary step – with the possibility of moving to the judicial phase, should this one yield no result – one may want to take advantage of the European Order for Payment procedure, which is a tool to force the debtor into making a decision relatively fast. Upon delivery it faces them with the question of either accepting their debt – thus making it immediately enforceable – or contesting it. Debtors have 30 days to lodge any statement of opposition to the European Payment Order. There is a similar procedure that works in a similar way and Hungarian lawyers prefer to make frequent use of it.

Payment order procedure and interest rate

Regulated by Act L of 2009 on the order for payment procedures, these are simplified, out-of-court civil law proceedings for the enforcement of payment claims and fall within the competence of civil law notaries. What’s important to note is that the notary’s proceedings – as out-of-court civil law proceedings – have the same effect as court proceedings. You can upload your claim with the necessary evidence to a centralized uniform online IT system, operated by the Hungarian Chamber of Civil Law Notaries. The costs vary depending on the value of the claim, more precisely 3% of the value, but at least 5,000 HUF (approx. 15,- EUR) and max 300,000 HUF (approx. 1000,- EUR). This is naturally excluding the various fees of legal professionals and potentially translation costs (if they are needed).

The Hungarian Civil Code conforms to the EU Directive of 35/2000 on combating late payment in commercial transactions. It should be noted that the currency of Hungary is not Euro, but the Hungarian Forint and therefore the interest rate – in the absence of a contractual agreement – shall be the base rate of the National Bank of Hungary (and not the ECB), plus 8% p.a. between B2B partners.

Encforcement

Once you have an enforceable document (there are several different types, not only judgments), the enforcement may commence. Many debtors decide to pay at this point, without the need for an actual enforcement procedure. The enforcement is in fact the third official step of a legal procedure, and it is carried out by bailiffs. Bailiffs in Hungary are linked strongly to the state and creditors cannot order them, but may request certain actions. The bailiff’s fees depend on the function of the enforceable document (“végrehajtható okirat”) issued (whether it is to collect a debt or enforce a specific action). In case of debt collection (“pénzkövetelés behajtása”), the bailiff’s fee is always proportional to the amount of the debt to be collected. If the task is concerning the enforcement of a particular action (“meghatározott cselekmény végrehajtása”), the fee depends on the time spent in the case. Fees and costs associated with judicial and extra-judicial actions are all regulated by law.

Statutory Limitations

Last, but not least creditors should be aware of the statutory limitation on contractual claims in Hungary. The limitation period is generally 5 years, which starts with the due date of the claim. Complementary claims are connected to the main claims, after limitation a debt cannot be claimed in court, however this does not mean that the claim ceases to exist in the eyes of the law (naturalis obligatio).