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The Hungarian Supreme Court has issued a second judgement (BH 2002.364) confirming that assignments by way of security do not survive the assignor's insolvency. Although Supreme Court judgements are not binding as precedent, two recent judgements on this issue cast considerable doubt on the effectiveness of existing methods of taking security over rights and claims.

Hungarian law generally allows a debtor to assign certain of its rights to a creditor. Lawyers, without express statutory recognition for such distinctions, have used assignment either to effect a transfer of rights in order to perform certain contractual obligations (absolute assignment), or as security for the performance of certain underlying obligations, subject to reassignment on satisfaction of those obligations (security assignment). The only perfection requirement for both outright assignments and assignment by way of security is the service on the relevant debtor of a notice that the assignment has occurred. But the Supreme Court has held that - regardless of the delivery of that notice - if the obligor had not performed to the assignee before the commencement of liquidation proceedings against the assignor, the (unperformed) obligation constitutes part of the assignor's liquidation estate.

The decision is curious in that it has not challenged the effectiveness through insolvency of an outright assignment but only of assignments by way of security. That leaves open the question of how, if at all, effective security over such rights may be taken. The inability to take security over future rights and claims including receivables could have material adverse ramifications for project and other structured finance transactions.

Attila Horváth

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