Fiduciary securities in insolvency

When the new Hungarian Civil Code entered into force in 2013, it provided that fiduciary securities, with certain exceptions, shall be null and void. The reason for the new rule was that the legislator realised that it is not logical to provide detailed, mandatory provisions for the secured creditors’ rights and obligations in case of charge, if the creditor can obtain better position by choosing fiduciary securities. One of the most important benefit of fiduciary securities were that they did not belong to the insolvency assets of the debtor, thus the creditor could enforce his claim even if the debtor went under liquidation.

However, the legislator amended the ban on fiduciary securities in 2016 and provided that such agreements are null and void only insofar as they provided by consumers. Sadly, parallel to the amendment of the Civil Code, the insolvency code was not amended, therefore the beneficial treatment of such creditors remained.

The Hungarian Parliament is currently discussing a bill for the amendment of the insolvency act, which would, among other provisions, solve this problem. The bill provides that the most important fiduciary securities shall be registered in the land registry or the security registry, otherwise the creditor would not have the right to enforce his claim after the opening of insolvency or liquidation.

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