New Rules on Financial Collateral Arrangements

As a result of Hungary's accession to the European Union on May 1 2004, certain amendments were made to Hungarian law on the basis of the EU Financial Collateral Directive (2002/47/EC). In particular, creditor protection amendments relevant to the enforcement of financial collateral (known as 'security deposits' in Hungarian legal terminology) were introduced to the Act on Bankruptcy Proceedings, Liquidation Proceedings and Members' Voluntary Dissolution (49/1991) and to the Hungarian Civil Code (Act 4/1959).

Previously, according to the Bankruptcy Act, if a debtor provided a security deposit (i.e. money or securities over which a creditor could seek direct enforcement in case of a breach of the payment obligation), the security deposit agreement - by virtue of law - terminated on the day of publication of the debtor's liquidation. On this date, the security deposit had to be surrendered to the liquidator; the creditor to which the security deposit was