International Insolvency Law in the New Hungarian PIL Code - A Window of Opportunity to Enact the UNCITRAL Model Law on Cross-Border Insolvency?

Abstract

The Hungarian PIL framework is unfit to adequately address the relevant questions of the international insolvency law. In cross-border situations, the existing regime does not function properly and this may result in legal uncertainty, improper protection of the foreign debtor’s assets located in Hungary and neglect of the principle of collective proceedings. The Proposal for the new Hungarian PIL Code appears to make some progress regarding the jurisdiction of Hungarian courts and the law applicable for insolvency proceedings. However, the recognition of the effects of foreign insolvency proceedings – the extension of the effects of the lex concursus – would be conditional upon reciprocity meaning that the system would be functional vis-à-vis only a few, if any, foreign states. In most cases, no foreign insolvency proceedings would be recognised in Hungary. This may cause that the foreign debtor’s assets located in Hungary would be exposed to individual enforcement actions resulting in the violation of the principle of the collective proceedings. This paper argues that the enactment of the Model Law by Hungary would adequately fill the regulatory gap left open by the Proposal. Rather than extending the legal effects of foreign insolvency proceedings to Hungary, the Model Law attaches limited sui generis legal consequences to the foreign insolvency proceedings. The Model Law would allow Hungary to keep under control the infiltration of the effects of foreign insolvency proceedings from states in relation to which it has no full confidence while maintaining the idea of collective insolvency proceedings by protecting the assets of the foreign debtor located in Hungary and preventing individual actions. In other words, the Model Law represents a balanced approach between the universal effects of the insolvency as provided for by the lex concursus and the protection of the local interests.