Insolvency proceedings have risen dramatically in Hungary and across Europe. According to a 2024 World Bank study, Hungary’s insolvency regime scored only 65.8 out of 100, indicating significant room for improvement. To address these issues, the government has drafted a new bankruptcy law, with adoption expected soon and the law potentially taking effect in 2028.

Hungary’s insolvency framework has traditionally rested on two pillars: liquidation and bankruptcy. The bankruptcy procedure has never been popular, with barely a dozen cases initiated yearly. Banks and creditors have favored contractual solutions, particularly the voluntary “Budapest Rules” developed after the 2008 financial crisis.

Legally speaking, the most fundamental change would be the introduction of a single, unified insolvency procedure that can pursue either reorganization or liquidation depending on the debtor’s circumstances. The new system would establish three clear phases: a preparatory stage, an opening stage, and a substantive stage where the court determines whether the business should be reorganized or wound up.

The reform prioritizes keeping viable businesses alive. Unlike current bankruptcy proceedings, which rarely result in successful rescue agreements, the new reorganization procedure requires debtors to prepare detailed, time-bound reorganization plans.

Courts would approve reorganization only if expert analysis suggests the business can realistically return to financial health. The new procedure would closely resemble the preventive restructuring procedure, which has been available since 2022, though both options would remain available to debtors.

Secured Creditors Face Significant Changes

Secured creditors, those holding collateral such as pledges, would face significant changes. The draft law proposes a category called “creditors entitled to separate satisfaction,” giving secured creditors a choice: enforce their security rights outside the insolvency proceedings, or participate in the collective procedure with priority status, while the insolvency practitioner manages collateral.

If remaining outside, they may still need to cover uncovered procedural costs. Critically, non-participation is time-limited: secured creditors must enforce their security rights within 30 calendar days, effectively making most out-of-court enforcement methods impossible and likely encouraging banks to acquire pledged assets through debt set-off, selling them later under calmer circumstances.

The draft law proposes restructuring creditor priority following German models, with a proportionality principle: when the estate cannot fully satisfy claims within a category, distribution occurs proportionally. This provides another reason for banks to finance only through ring-fenced SPV structures or to cooperate with other secured creditors via precise intercreditor agreements.

The reform would tighten personal liability rules. Directors and shareholders could be held personally responsible for unpaid creditor claims if they abused limited liability, for example, by treating company assets as their own or pursuing policies harmful to creditors. The draft also captures “shadow directors” who control management without formal appointment.

To encourage rescue financing, the new law would protect creditors providing interim financing during reorganization. Such arrangements, when approved by the insolvency practitioner and included in a court-approved plan, could only be challenged on grounds the practitioner could not have known.

If adopted, these reforms would position Hungary to adapt more smoothly to forthcoming European harmonization requirements while improving domestic outcomes. Creditors would need to substantially review and amend their security packages, ensuring adaptation to shorter deadlines and likely restructuring enforcement through separate asset-holding companies.

This article was first published in the Budapest Business Journal print issue of March 13, 2026.