The Directive (EU) 2019/1023 on Restructuring and Insolvency
represents a fundamentally new era for restructuring measures
outside of insolvency. Restructuring frameworks should, above all,
enable debtors to restructure effectively at an early stage and to
avoid insolvency, thus limiting the unnecessary liquidation of
By implementing the Directive into Hungarian law, important
changes were introduced in the Hungarian legal system. 1
The new regime will constitute a radical change compared to the
existing regime concerning restructuring, insolvency and discharge
The most striking features – a first overview
The new restructuring measures provide a new concept in the
existing gap between contract-based restructuring and formal
insolvency proceedings. The novelties in the new set of measures
include the following points below.
When can a restructuring process be
According to the restructuring rules, the debtor may decide on
restructuring if there is a likelihood of insolvency. The
likelihood of insolvency means a situation in which there are
reasonable grounds for believing that the debtor will be unable to
meet its outstanding payment obligations when they fall due, unless
further measures are taken. The aim of restructuring is to adopt
and implement a restructuring plan with some or all of the
creditors, thus preventing the debtor’s future insolvency and
ensuring the debtor’s viability.
There is an important distinction between insolvency and the
threat of insolvency which are defined under the Bankruptcy Act,
which allows for the opening of liquidation proceedings.
Within the scope of the Restructuring Act, a debtor is a legal
person carrying out economic activities, except for certain
entities which cannot be debtors in restructuring (for instance an
insurance company, a credit institution).
The debtor’s decision-making body cannot take a decision to
open restructuring procedure if bankruptcy or liquidation
proceedings are pending. In other words: (i) if restructuring
procedure is pending, bankruptcy proceedings cannot be opened; (ii)
if the court, at the debtor’s request, orders a moratorium, the
creditor affected by the moratorium cannot in the meantime initiate
A restructuring decision cannot be taken if 3 years have not yet
elapsed since the start of the previous restructuring
What documents are required?
The debtor’s decision-making body decides on restructuring
on the basis of a proposal by the chief executive officer which
includes, among others, the following: (i) the debtor’s assets
and financial situation, (ii) facts and circumstances supporting
the likelihood of insolvency and that there are no legal obstacles
to the decision on restructuring, (iii) the affected creditors’
claims, (iv) any changes affecting the debtor’s operations
during the restructuring, (v) legal, economic and other aspects
justifying the need for restructuring, (vi) circumstances which
make it likely that negotiations with creditors can be successfully
conducted and the restructuring plan can be accepted.
The request to open the restructuring procedure shall be
submitted by the debtor. The request shall be accompanied by the
debtor’s decision on restructuring and the debtor’s interim
balance sheet not older than 6 months and the last available
What is a restructuring plan?
The restructuring plan is the key element of the restructuring
procedure as the aim of restructuring is to prepare a restructuring
plan which is confirmed by the creditors. It is precisely the
restructuring plan that allows the debtor to restore its economic
and financial situation.
According to the general principles, restructuring measures
shall ensure equal treatment of creditors of the same class and the
restructuring plan shall not be targeted only at partial or total
waiver of creditors’ claims. As required by law, the
restructuring plan has a minimum content but may contain additional
explanations (for example criteria on the basis of which creditors
How is the restructuring plan voted on?
For the purpose of adopting a restructuring plan, the affected
creditors’ claims are grouped into the following classes: (i)
secured creditors’ claims, (ii) creditors’ claims related
to the debtor’s economic activity, (iii) other creditors’
claims, (iv) creditors’ claims arising from transactions which
are of interest to the debtor. This order of the creditors’
classes does not constitute an order of satisfaction.
The debtor and the affected creditors who have the right to vote
are involved in the adoption of the restructuring plan. Voting on
the restructuring plan takes place in a meeting of creditors
requiring personal attendance or by decision without a meeting. The
plan must be approved by a numerical majority of the affected
creditors with voting rights in each class of creditors, and a
majority of the total number of votes that can be cast in that
class of creditors is necessary.
In the restructuring procedure, it is possible for a majority of
creditors to override dissenting creditors (‘cross-class
cram-down‘). If the restructuring plan is not deemed to
have been adopted – but it has been approved by at least one class
of creditors – the debtor, the equity holders who have majority
control or the affected creditors with voting rights (with the
debtor’s agreement) may file a request with the court regarding
confirmation of the restructuring plan, making it binding upon the
dissenting creditors and the creditors’ classes.
What effects does the restructuring plan
Creditors vote on whether to accept the proposed restructuring
plan, but the final confirmation rests with the court.
The restructuring plan is accompanied by the debtor’s
statement that the creditors’ claims not affected by the
restructuring plan are covered and the debtor must state that the
implementation of the restructuring measures will not deprive
non-affected creditors of the funds to satisfy their claims.
In order to facilitate negotiations on the restructuring plan
and to ensure that the restructuring goal is achieved, the court
may, on the application of the debtor, order a stay of individual
enforcement actions (moratorium). The stay of individual
enforcement actions may be general, covering all creditors, or it
may be limited, covering one or more individual creditors or
categories of creditors. The duration of a stay of individual
enforcement actions shall be the duration defined in the
application of the debtor, but it shall be limited to a maximum
period of 4 months. The total duration of the stay of individual
enforcement actions, including extensions and renewals, shall not
exceed 12 months.
During the period of a stay of individual enforcement actions,
the creditors to which the stay applies shall not initiate
enforcement proceedings, liquidation proceedings against the
debtor, and shall not set-off their claims. The time limits for
launching a litigation to enforce pecuniary claims are extended by
the duration of the stay of individual enforcement actions, but the
stay does not affect pending litigations. During the period of a
stay of individual enforcement actions, the debtor is also entitled
to a payment moratorium in respect of the creditors’ claims
that became due before the stay.
Are (interim) financing arrangements
Yes. Under a restructuring plan, new financing and interim
financing is largely protected against insolvency clawback
mechanism. Following the failure of restructuring, the creditors,
who provided new financing or interim financing in the
restructuring procedure have a privileged status in the ranking of
liquidation priorities in liquidation proceedings.
Is there a simplified restructuring
The new Restructuring Act shall enter into force on 1 July 2022
and represents a new era for restructuring law outside of
insolvency. Overall, it remains to be seen whether the new
restructuring process will indeed foster the resolution of
insolvency situations and will change the approach of debtors and
creditors and thus change current practice, which would be a
positive development. We draw attention to the following:
- Restructuring measures encourage debtors to apply for
restructuring at an early stage of their financial difficulties as
they remain in control of their assets and the day-to-day operation
of their business.
- The new restructuring procedure enables creditors to actively
participate in the choice of measures envisaged in relation to the
objectives of the restructuring operation, and creditors are
granted special procedural rights during the restructuring
- A restructuring practitioner assists the parties with
negotiating and drafting a restructuring plan and supervises the
debtor’s activities but without the debtor losing control of
- In restructuring procedures, the stay of individual enforcement
actions (moratorium) does not automatically apply to all creditors.
The purpose of the protection is to give the debtor sufficient time
to negotiate a restructuring plan with the affected creditors in
order to continue and restore the financial situation when it
appears likely that the debtor’s insolvency may be prevented.
The stay of individual enforcement actions can be general or
limited. A limited stay of individual enforcement actions covers
one or more creditors or a group of creditors based on the
debtor’s decision. Considering that a court order on a limited
stay is not published, creditors (in particular financial
creditors) will not be aware of the stay and hence it will not
affect any other contractual relations of the debtor.
- The Restructuring Act lays down minimum standards for the
content of a restructuring plan, so the debtor and creditors may
formulate a plan which may contain additional explanations and key
factors. The restructuring plan on the one hand focuses on the
payment extensions expected from the creditors, on the other hand
contains measures undertaken by the debtor.
- Generally, some creditors can have contractual rights, provided
for in so-called ipso facto clauses, entitling them to
terminate or modify a contract solely on account of insolvency of
the debtor, even if the debtor has duly met its obligations. In
restructuring procedures, creditors are not allowed to invoke
ipso facto clauses which make reference to the
restructuring or the stay of individual enforcement actions.
- As an important creditor protection rule, it should be
recognised that satisfying the ‘best interest of creditors’
test means that no dissenting creditor is worse off under a
restructuring plan than in liquidation proceedings.
- An important feature of the restructuring plan is the so-called
cross-class cram-down. It allows the debtor to apply to the court
for approval of a restructuring plan, even where there are
dissenting creditors’ classes, and the court may approve such a
restructuring plan if certain conditions are met. This is to ensure
that creditors do not unduly impede the adoption of a restructuring
plan which will make the debtor viable again.
- Last but not least, from a precautionary point of view,
restructuring measures should be considered if a debtor in
financial difficulties is not economically viable or cannot be
readily restored to economic viability, and the restructuring
efforts could result in the accumulation of losses to the detriment
of creditors. Therefore, in case of non-viable businesses with no
prospect of survival, the insolvency proceedings should be
1. Act No. LXIV of 2021 on Restructuring, implementation
of the Directive (EU) 2019/1023 on Restructuring and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.