A New Era in Executive Liability – Liability of Managing Directors
The 2023 amendments to the Hungarian Bankruptcy Act significantly reshaped the rules governing the liability of managing directors when a company is facing insolvency. The goal of these changes is to allow more effective action against executives who fail to take the interests of creditors into account in crisis situations. Under the stricter rules of the Hungarian Insolvency Act (Act XLIX of 1991), managing directors may now be held personally liable with their own private assets.
Protection of Creditors’ Interests – A Legal Obligation
According to the revised Hungarian Insolvency Act, when insolvency is imminent, managing directors must consider not only the company’s interests, but also those of its creditors. If the court finds that this duty was neglected, the managing director can be held personally liable for damages caused.
Significantly Extended Deadline for Legal Action
The most substantial change relates to the statute of limitations for initiating liability claims. Previously, creditors or the insolvency administrator had only 90 days to bring legal action after a court established the managing director’s liability. Since the 2023 amendments, this deadline has been extended to five years, offering creditors a much greater opportunity to recover debts from the executive’s personal property.
Who Can Initiate Legal Proceedings?
In addition to the insolvency administrator, any creditor may initiate legal proceedings if it can be shown that the managing director failed to act in accordance with the creditors’ interests. These proceedings aim to enforce repayment of company debts from the director’s private wealth.
Executive Liability in Practice – Prevention Is Key
In practice, it is strongly advised that managing directors seek legal counsel at the first signs of financial distress. Proactive legal strategy and proper documentation of their efforts to protect creditor interests can significantly reduce the risk of personal liability.
Conclusion: Responsibility in Times of Financial Crisis
The updated rules on executive liability in case of insolvency risk send a clear message: company executives must act responsibly, transparently, and with due regard to creditors in times of economic hardship. The extended limitation period not only introduces stricter liability but also enhances the enforceability of creditors’ rights.
—
Legal Advisory Services and Internal Policies for Managing Directors
Understanding and complying with the updated rules on managing director liability is essential for any executive. Our law firm – Katona & Partner Attorneys’ Association – offers comprehensive legal support in the following areas:
– Legal risk assessment for managing directors and executive officers
– Drafting and reviewing internal policies for insolvency risk management
– Legal representation in insolvency and liability proceedings
– Legal advice for executive decisions in light of creditor interests
Feel free to contact our team if you wish to prepare for legal risks or require expert assistance with executive liability.
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
___________________________________
Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57