What does a compulsory strike-off procedure mean?
With the compulsory strike-off procedure introduced in 2012, companies the operation of which does not comply with legal procedures can be deleted from the trade register and forced out of the economy quickly. The court of registration may initiate the procedure in the following cases:
- if the court of registration declares the company terminated;
- if the company failed to complete its voluntary dissolution within 3 years and did not submit an application for its strike-off from the trade register;
- if the company was terminated without legal succession and no voluntary dissolution procedure can be applied.
However, a compulsory strike-off procedure may not be ordered if the company is insolvent or if the court, the prosecutor's office or the investigating authority notifies the court of registration that a criminal law measure may be taken against the company.
How will compulsory strike-off procedures change from July?
Regulation will undergo a substantial change from 1 July 2021. Within a limitation period of fifteen days from the starting date of the compulsory strike-off procedure, the company may request a permission from the court of registration for it to carry out business-like economic activity with regard to the fact that it intends to file an application for the termination of the compulsory strike-off procedure until the ninetieth day from the starting date of the compulsory strike-off procedure. The application for the termination of the procedure may be founded on the fact that the conditions for the continued operation of the company are fulfilled.
After the filing of the application, the company may perform business-like economic activity within the limits of day-to-day operation, which may even involve the taking of business risks. According to the general rules, at this stage of the company's life, only the interests of the creditors may be taken into account, which does not necessarily contradict the continuation of the company's economic activity within the limits of day-to-day operation but the focus and sphere of the activity will nonetheless shift. Still, no decisions may be made that are not in line with the purpose of the compulsory strike-off procedure and creditors' interests will have to be considered in other necessary measures also.
This means that in the case of companies undergoing a compulsory strike-off procedure, contracting partners will have to proceed with utmost care as the company may not assume new obligations (unless it files an application for the approval of continued economic activity with a view to possible continued operation),it may not satisfy liabilities of the company and may not transfer or encumber assets of the company.
Personal liability in respect of the situation leading to the compulsory strike-off
A key element of the amendments to be entered into force in the near future is the personal liability of the persons involved in the non-compliant operation. If the compulsory strike-off procedure is not terminated, the court of registration will examine whether the executive or the member was in liable in respect of the non-compliant operation of the company.
The act discusses under a separate heading the procedural rules relating to the members and representatives connected to the company. The rules are also applicable to persons who were in contact with the company in the two years preceding the compulsory strike-off procedure. If the procedure is closed with establishment of liability, the persons concerned will be disqualified and they will also become liable for the fulfilment of non-satisfied creditor claims.
Reporting of claims
The reporting of potential claims will remain a critical element of the compulsory strike-off procedure but, in the future, the court of registration will not have to consider whether the company's assets provide sufficient coverage for the expected expenses. The legislator determined an objective value limit of 400,000 forints above which the liquidation procedure is started.
A second chance is not always there
However, there is not always a way out of a compulsory strike-off procedure. If the cause of the compulsory strike-off procedure was that a situation leading to termination of the company without legal succession emerged and a voluntary dissolution procedure cannot be applied, the company will not receive a second chance for restoring operation.