The Facts
The debtor borrowed significantly from leading domestic investment banks to finance a major construction project. The loan was secured by a pledge established on all of the debtor’s existing and future claims, including rental fees arising from an office building owned by the debtor.
What Happens to Pledges over Receivables when the Pledgor goes into Liquidation?
Hungarian insolvency law provides for a right of the liquidator to terminate, with immediate effect, contracts concluded by the debtor, or – in case neither of the parties rendered any services – to rescind the contract. This applies even in cases where contractual provisions or relevant legislation would otherwise prohibit the termination of the given contract.
With the effect of 1 September 2015, Hungary introduces legal provisions on personal insolvency. Such procedure is reserved for private individuals (may they be entrepreneurs or consumers), who have debts between HUF 2 mln (approx. EUR 6,500) and HUF 60 mln (approx.EUR 195,000).
Moody's announced in October 2014 that the detainment of Agile Property Holdings' chairman, Chen Zhoulin by government authorities was credit negative, in Moody's view, "similar incidents would adversely affect developers' borrowing costs and/or their access to offshore funding". The events that have unfolded since show that Moody's were right on the money.
Introduction
Gaining access to development land in the PRC has often been linked to government connections and dubious business practices. However, a number of investigations into the allegedly corrupt activities of high-level real estate executives in China have recently taken place.
Under Hungarian insolvency law, creditors secured by mortgages or pledges are entitled to privileged satisfaction of their claim, meaning concretely that they are entitled to receive the whole proceeds reached in the course of the realization of the pledged property after deduction of the (i) cost of keeping the property in good repair and of maintenance, and costs of selling the pledged property; and (ii) the liquidator’s fee up to 5% of the net purchase price.
Potential liability for wrongful trading
In Hungary the Act no. XLIX of 1991 on the insolvency and compulsory winding up procedure (hereinafter referred to as “Insolvency Act”) established the term “wrongful trading”. Under section 33/A of the Insolvency Act a manager of a company shall be personally liable if after the occurrence of threatening insolvency (i.e. when the company is unable to settle its liabilities when due) the director’s duties have not been fulfilled based on the priority of the company’s creditors’ interest.
With APCOA Parking, the English High Court sets out the latest line of authority in the increasing use of schemes of arrangement by foreign companies.
This case, APCOA Parking (UK) Limited & Ors [2014] EWHC 997 (Ch), presents two novel aspects: