1. Civil Law Codification and Economic Crisis: The New Hungarian Civil Code András Szegedi Ph.D Reader-at-law, Head of Department of Commercial, Labour and Land Law, Széchenyi István Faculty of Law, Győr Attorney-at law, Győr kamt.sze.hu www.milassinszegedi.hu

2. Historical Background I. Traditionally a dualist private law system distinguishing commercial (trade) law and civil law German influence Act 37. of 1875 on the Commercial Code Until 1960, no written civil code in force Constant and unsuccesful attempts to create a code

3. Historical Background II. Draft Codes: 1900, 1915, 1928. Neither ever passed, yet the latter came into force as written customary law Unwritten constitution and unwritten civil law in that period

4. Historical Background III. After WWII, new social and economic regime Written constitution (1949) Another attempt at codification Act IV. of 1959 on the Civil Code (still in force) Soviet influences, Soviet pressure, yet succesfully implementing many elements of the „bourgeois” past Monist system exchanging the dualist: commercial (trade) law can not exist, all relations of private law regulated by one single code

5. Historical Background IV. After 1989, the amendements of the Code passed to reform the text to the fundamentally changed economic and social conditions Company law, family law, detailed rules on intellectual property were regulated elswhere Plans for a future Code started to outline The official preliminary works of codification started in 1998 After 10 years, a new committee was appointed and the Code was finished in 2008/2009

6. Historical Background V. Act CXX. of 2009 was adopted, yet it never came into force The act on the coming into force of the new Civil Code proved to be unconstitutional due to the short period for coming into force and thus violating legal security Another committee was entrusted to finish codification Last week the government approved the finalised text, the new Code shall pass this fall

7. Concept of the Code „Holistic” approach: integrating the whole field of private as completely as possible The structure divided into „books” – Dutch example Maintaining the classic values and incorporating new institutions Fundamental values: human dignity, freedom of property, freedom of contract

8. The Structure of the Code Book I.: Introductory Provisions Book II.: Man as a Subject at Law Book III.: Legal Persons Book IV.: Family Law Book V.: Law of Things Book VI.: Law of Obligations Book VII.: Inheritance Law

9. Book III.: Legal Persons The most singificant new feature is that the whole body of company law shall be integrated to Book III on Legal Persons The separate Act on Business Associations (Act IV. of 2006) shall be set aside Some of the rules that today belong to the general provisions on business associations shall be transformed into the general provisions on legal persons; In general: wherever it is possible, former company law rules shall be elevated to a more abstract level and thus serve as rules on legal persons The current roster of business companies shall remain unamended: general partnership, limited partnership, private limited liability company, private company limited by shares, public company limited by shares

10. What do we expect from a Civil Code? The rules - should be highly abstract - should be stable through decades or even for centuries - should comfort the needs of practice in all relevant fields - should leave freedom for private parties to govern their own affairs, whenever it is possible

11. What do we expect from company law? The rules - should be flexible - should be adaptable for the ever-changing economic climate - shall be subject for constant revising and recodification - should leave freedom for private parties to govern their own affairs, unless third parties’ or creditors’ interests require a mandatory approach The conflict: company law might be a means to handle economic crisis, yet a Civil Code is not an adequate instrument for such intervention.

12. The Impact of the Crisis on Codification The Code has been designed to last for many-many years The crisis – most likely – will not last that long: It is not the task of the Civil Code to remedy the harms caused by an economic crisis. Our new code, through incorporating the rules of company law, reflects to some extent to the new phenomena.

13. New Instruments in Company Law Introduced in 2007: Electronization of registration procedures Faciliating promoters to gain easy market access Reducing equity capital limits Reducing procedural fees Drastically reducing deadlines for incorporation Simplifying procedural rules

14. The Results Record-breaking number of liquidation procedures Generally increasing symptom of wrongful and/or fraudulent trading „Phantomization” of business companies Great damages caused for the state budget

15. The New Legislative Approach The market was given a chance to operate freelier – controversial results The simplified registration procedure shall remain in force, yet the „one-hour company” shall be available no longer Mandatory preliminary tax authority filter concerning promoters and managers A domestic agent for services of process shall be mandatory to appoint for foreign participants In case of failing to meet the deadline for filing the profits/losses account, the company might be deleted from the Registrar Equity capital requirements shall be restored

16. An Evolutive Approach In Company Law On the one hand, rules tend to be stricter; in the connecting fields of law (registration procedure, tax registration, liquidation procedural rules, etc.) the tendency is clear. On the one hand, rules tend to be stricter; in the connecting fields of law (registration procedure, tax registration, liquidation procedural rules, etc.) the tendency is clear. On the other, elevated liability implies elevated level of freedom also: On the other, elevated liability implies elevated level of freedom also: Mainly default character of the rules: the partners shall be free to deviate from the rules set forth in the Code, unless it is prohibited by the Code itself. Mainly default character of the rules: the partners shall be free to deviate from the rules set forth in the Code, unless it is prohibited by the Code itself. Deviation is generally prohibited concerning the „hardcore” rules of company law, like company structure, liability, nullity, etc. and wherever third parties’/creditors’ interests may be affected Deviation is generally prohibited concerning the „hardcore” rules of company law, like company structure, liability, nullity, etc. and wherever third parties’/creditors’ interests may be affected The partners are free to conclude any agreement in the memorandum of association beyond the prohibited field. The partners are free to conclude any agreement in the memorandum of association beyond the prohibited field. Our previous acts on business associations employed different methods Our previous acts on business associations employed different methods

17. Goals and Expectations The new Code shall discipline the market and thus, hopefully, solidify the stakeholders’ positions. The new Code shall discipline the market and thus, hopefully, solidify the stakeholders’ positions. Increasing liability and apply stricter rules Increasing liability and apply stricter rules Increasing the level freedom, in line with the concept of freedom of contract, wherever only the company’s and its partners’ interests are at stake. Increasing the level freedom, in line with the concept of freedom of contract, wherever only the company’s and its partners’ interests are at stake.

18. Summing Up New Code: outstanding efforts New Code: outstanding efforts Governing the whole sphere of private law, including the majority of business matters Governing the whole sphere of private law, including the majority of business matters The economic crisis shall be – and is – treated by other means (Hungary is famous for its „unorthodox” approach…), The economic crisis shall be – and is – treated by other means (Hungary is famous for its „unorthodox” approach…), Yet the new rules of company law shall contribute to combatting the economic crisis in some extent. Yet the new rules of company law shall contribute to combatting the economic crisis in some extent.