Objective: Avoiding Insolvency
We would like to inform you about the latest practical changes regarding the implementation of the Restructuring Act, which came into force on January 1, 2024. The new regulation aims to enhance the efficiency of business operations while ensuring the protection of employees’ rights. Below, we summarize the key information and practical issues that may affect companies and their legal representatives.
- What is Restructuring?
The concept encompasses measures aimed at transforming business operations, including changes to the corporate structure, the reorganization of activities, and the optimization of the workforce. The purpose of the law is to provide a legal framework for carrying out restructuring activities and to clarify employees’ rights during the process. It is a type of legal liquidation procedure aimed at avoiding insolvency.
- Scope and Application of the Law
The Restructuring Act applies when a company changes its scope of activities or when the business structure undergoes significant changes. The law affects not only large companies but also smaller businesses if they undertake restructuring.
- Obligations Prescribed by the Law
Before carrying out a restructuring, the employer must fulfill several obligations, such as:
- Employee Information: The employer is required to inform employees about the restructuring plans and their expected impact. The information must be clear and detailed, including the termination, relocation, or creation of new positions.
- Collective Negotiations: If the company has a collective agreement, negotiations between the employer and the trade union are also mandatory. The parties must be given the opportunity to present their views and must reach an agreement on restructuring-related matters.
- Compensation and Reparation: Employees who lose their jobs as a result of the restructuring must be provided with compensation and reparations. The new rules clearly define the forms and extent of benefits employees are entitled to.
- Practical Issues During the Execution of Restructuring
- Legal Deadlines: The law sets strict deadlines for informing employees and conducting collective negotiations. In many cases, these deadlines are shorter than what employers might be used to, so legal advice and preparation are key to ensuring smooth execution.
- Restructuring Plan: The restructuring must include a clear plan that details the affected areas, the changes, and the postrestructuring placement of employees. This plan must be legally and economically sound to avoid later disputes.
- Tax Issues: Tax obligations related to restructuring also play an important role. It is advisable for employers to consult tax experts to ensure that the tax aspects of the changes are properly handled.
- Sanctions and Legal Consequences
Under the law, if the employer fails to comply with the regulations and does not adequately protect employees’ rights, they will face legal consequences. This includes employee compensation claims as well as potential fines and sanctions, which could impose significant financial and legal burdens on the employer.
- What Should Companies Do?
It is particularly important for employers to thoroughly prepare in accordance with legal requirements during the restructuring. Legal advice should be sought during the implementation of the law to ensure that each step is taken at the right time and within the proper legal framework. Planning employee information and compensation is crucial for the success of the restructuring.
If you have any questions regarding restructuring or need assistance with the accurate application of the legal provisions, please feel free to contact us.
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
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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