Reorganization and Liquidation Proceedings since 1986

Abstract

Although there are growing indications that Hungary's management units face financial crises, very few of the businesses that are holding up economic progress have declared bankruptcy since September 1986, when the law on bankruptcy was put into effect. The process of solving the crises of enterprises has come to a standstill: neither of the parties entitled to initiate reorganization proceedings--debtors or creditors--appear interested in making the bankruptcy situation more accessible, and the government, which promotes the practice, has no legal right to initiate proceedings. In the very infrequent cases when action was taken to solve the crises of a large state-owned enterprise, it was, by and large, done through the process of reorganization. But whether we were talking about reorganization or liquidation, the state influenced the proceedings in such a way as to favor solutions that preserve the firm's basic activities and distribute losses among the creditors. As a result, the radically different ways of solving bankruptcy situations, reorganization, and liquidation, came to resemble each other, and often their distinctiveness became largely formal.