Economic Analysis of Recent Laws on Corporate Reorganization Methods in Hungary

This chapter is based on primary research focusing on the effect of bankruptcy regulatory changes in Hungary after the 2008 global financial crisis. It studies the attitudes of Hungarian companies toward reorganization possibilities in a creditor-friendly environment and examines the outcomes of the new procedures. The conclusion is that the financial variables are seemingly irrelevant in decision-making. The bankruptcy procedure has become a useful tactic for the owner-management to keep their position and protected status as long as possible even at the expense of the divergent creditors. In a bank-based financial market, dwelled by mostly small enterprises not listed at the stock market, information is a precious commodity even for banks, let alone other creditors. The chapter’s conclusion is that there is a genuine need for a different model for bankruptcy procedures in Hungary. A model in which financially rational decisions is not dysfunctional. We find that time is the most important factor here. It is therefore suggested that the rules should be designed so that the companies be motivated to file for bankruptcy in time. This design is the automated mandatory auction bankruptcy procedure or its pre-pack version.