Directors’ Duties in Hungary

>> Liabilities and Penalties in Hungary

Generally, managers are liable for damages caused to the company resulting from his management activities in accordance with the provisions of contractual liability, ie performed in breach of contract. However, in order for this to apply the following must be found:

  • the company has suffered a compensable loss, ie an actual loss
  • there is a causal link between the actions of the manager and the loss
  • the conduct was unlawful
  • the director failed to act within the standard of care expected of a manager

In the area of non-contractual damages, the manager and the company has joint and several liability towards the injured third party in the case that the damage was caused by the manager in connection with his legal position.

In the event of the company’s dissolution, creditors may bring an action for damages against the manager, if the manager failed to take the creditors’ interests into account in the event of an imminent threat to the company’s solvency (except where the company is wound up without going into liquidation). Following the company’s dissolution, claims for damages may be brought against the manager by the shareholders as well, although this must be within a preclusive period of one year following the company’s removal from the Companies’ Registry.

In respect of criminal liability, managers may be found guilty for committing criminal acts which are specific to their positions of executive officers, for example, impairment of own capital, failure to comply with the obligation to supply economic data and capital investment fraud. Managers may also be guilty of other felonies in connection with their activities, for example:

  • budget fraud or omission of their oversight of supervisory responsibilities in connection with budget fraud
  • money laundering or failure to comply with their reporting obligations related to money laundering
  • fraudulent bankruptcy, the concealment of assets for avoiding liability and misappropriation of funds
  • agreements relating to the restraint of competition in public procurement and concession procedures, including the imitation of competitors, etc

Penalties vary depending on the breach of  duty however, for reference, please note the following penalties:

  • the court of registry may impose a financial penalty of between HUF 50,000 (approx. EUR160) and 900,000 (approx. EUR2900) for any failure to comply with the obligation  to notify shareholders of important matters  in due time
  • in the case of judicial oversights proceeding, the fine is between HUF 100,000 (approx. EUR320) and 10m (approx. EUR32,200), imposed directly on the director if there is evidence to indicate that the reason for judicial review is attributable to him
  • there is a fine of between HUF 100,000 (approx. EUR320) and 900,000 (approx.

EUR2900) for failure in director’s duties  relating in dissolution proceedings

  • financial penalties may be imposed (repeatedly) by the court of between HUF 100,000 (approx. EUR320) and 500,000 (approx. EUR 1610) for any breach of statutory obligation relating to the company’s administrator or for failure to notify the court concerning the outcome of a composition conference in bankruptcy proceedings

Limitation of liability

The shareholders may, providing it is allowed in the Articles of Association, grant a ‘holdharmless warrant’, acknowledging the manager’s management activities during the previous financial year. This has the effect of approving  all the manager’s actions from the previous  year, thereby removing all liabilities towards  the company and shareholders.

Please note that such restrictions shall not be effective vis-á-vis third parties.

There is no specific law regulating the limitation of liability for corporate actions for a directors’ breach in Hungary, however generally the limitation period is five (5) years. Any agreement excluding this limitation is null and void, but it can be restricted. For claims deriving from employment relationships, the limitation period  is three (3) years.

Delegation of authorities

In certain circumstances managers may delegate powers of representation to the employees of the company, however this must be done officially and in writing. Further, managers are generally  still responsible for overseeing the actions of  the delegate.

Directors and officers (“D&O”) insurance

Directors and officers liability insurance is available and can be obtained by either the company or officer directly. However, please note that in practice it is not widely used for practical and cost implications.

Latest version updated 22nd March 2018

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