The Liability of Managing Directors under Hungarian Law

In Hungary, the liability of managing directors is determined by whether they are employed under an employment contract or a mandate agreement.

1. Employment Relationship: Liability as “Executive Employees”

If the managing director is employed under a labor contract, they are considered an “executive employee” under Hungarian law. According to the Labor Code, managing directors are fully responsible for any damage caused intentionally or negligently during their employment. However, they are not liable for damages that were unforeseeable at the time of the incident, damages caused by the employer’s wrongful behavior, or damages resulting from the employer’s failure to mitigate the loss.

2. Mandate Relationship: Civil Code Standards

If the managing director operates under a mandate agreement, their liability is assessed based on the Civil Code (Ptk.). According to the Civil Code, managing directors are required to compensate for any damages caused to the company through their actions during their management duties. The managing director can be exempt from liability only if they prove that the damage was caused by circumstances that were beyond their control, unforeseeable at the time, and could not have been avoided or mitigated.

3. Hungarian Case Law on Managing Directors’ Liability

In Hungary, it is common for businesses to file damage claims against managing directors due to fines imposed on the company. These cases often arise from tax fines if the company violates tax laws or from employment-related penalties due to unreported workers. Several of these cases have been made public in anonymous court decisions.

One notable case involved a competition law fine. The Hungarian Competition Authority (GVH) imposed a fine on a company for price-fixing with its competitors. The managing director personally engaged in price negotiations at an industry association meeting. The company initially attempted to contest the fine, but after losing the case, it had to pay the fine. The company then sued the managing director for compensation equivalent to the amount of the fine.

After both the first and second instances, the case was taken to the Hungarian Supreme Court (Kúria), which confirmed that the managing director was indeed responsible for the fine and was required to pay compensation to the company. The Court determined that the managing director’s actions violated competition law by disclosing planned price increases to competitors, which led to the fine.

4. Conclusion

The liability of managing directors is clearly defined under both labor law and civil law in Hungary. Even if a managing director acts within the scope of their mandate or employment contract, they can still be held liable for damages caused by their actions, especially in cases involving fines or violations of laws such as tax or competition law.

If you’re a managing director or involved in business management, it is crucial to understand these liabilities and take appropriate legal precautions. Ensure compliance with all relevant regulations to avoid personal liability.

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Contact Information:

Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)

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