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Hungary

The Hungarian Ministry of Justice has introduced a bill for a new Law on Economic Associations (Companies Act). The planned law would serve the purpose of further harmonizing Hungarian company law with EU rules by establishing western standards. Furthermore, the experience of the past few years has confirmed the need for a new law. Since the Companies Act came into force on January 1 1989, the law has been shown to have numerous loopholes and to be wide open to abuse. The bill attempts to address these faults.

The draft states the purposes of the bill to be as follows: harmonization of the Company Law with EU rules, improved protection for creditors, and the simplification and expedition of the registration procedure. The bill is expected to be passed in the second half of this year and to take effect on January 1 1998. Realizing that the aim of expediting registration cannot be achieved without changing the rules for registration as well, the drafting committee has also taken those rules into consideration. The area having been regulated so far mainly by decree, the committee has now put forward a draft by which all rules concerning registration will be put into one single law. This serves to make the registration process enormously clearer and more transparent.

Professor Sárközy, who chaired the drafting panel, explained that with the new law the courts should realize they are not so much a sovereign organ, but rather selling a service to their clients. For that service clients are paying and should therefore be served as quickly and properly as possible, which would mean a complete change from current practice. According to Professor Sárközy, new personnel and new financial resources will be allocated as well to enable the swifter handling of the 80,000 applications pending.

Some of the innovations of the proposal are discussed below.

The draft introduces new shorter time-limits within which the registration must be completed. These limits are, for companies without legal personality, such as the 'unlimited partnerships' (in Hungarian 'kkt') and the 'limited partnership' ('bt'), 30 days; for companies with legal personality such as the 'limited liability company' ('kft') and the 'company limited by shares' ('rt') the time limit is 60 days. If the officials fail to meet these time-limits, the companies must be registered without any further examination. Thus, registration would be made a great deal quicker; at the moment the period before the actual registration has taken place is difficult to calculate.

At present it is relatively easy to exclude a member of, for example, a limited company. This is now going to be more difficult. In future, the company will have to turn to the competent court. The court will decide in an extraordinary hearing not later than 15 days after the filing of the action to exclude one of the members. A related area is the extension of the time-limit for appeals to the court for an infringement of the law, any other legal norm or the deed of partnership, by any of the partners. In future it will be 30 days from giving notice, at the latest 90 days after the infringement, in contrast to 30 days after the infringement, which is independent of the actual notice.

An important innovation for the protection of creditors will be the liability to pay an additional amount of money if the registered capital according to the annual balance sheet no longer complies with what is demanded by the relevant law. If the members do not pay the neceessary amount, the company must be transformed into another company the legal requirements of which it still fulfils.

Another measure to improve the lot of creditors is the raising of the registered capital both of kft and the rt. In the case of the kft, the registered capital will have to be Ft3 million (US$15,000), for the rt it will be from Ft10 million to 20 million. For existing companies, the period for complying with these rules will be one year after the new law comes into force.

In addition to these rules, there will be a large number of other changes designed to address creditors' interests and make business conditions more reliable. Though the bill falls short of what has been demanded by practitioners, it will certainly improve investment conditions in Hungary.

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