The fact that the new Hungarian Civil Code, which entered into force on 15 March 2014, at last recognized the concept of transfer of contractual position was a welcome development. Previously, a similar effect was achievable through the parallel assumption of debt and assignment of claims, but this solution was problematic in rather complex transactions (e.g. in case a lender wishes to transfer its stake under a credit facility agreement along with all security interests).
Under the new Civil Code, banks are provided with the most
obvious solution, as they can simply transfer their contractual
positions under a credit facility agreement to the new lender.
However, the rules that new Civil Code provides for the transfer of
the security interests securing such credit facility agreement are
ambiguous.
With regard to the regulation of the security interests, the new
Civil Code stipulates that, due to their accessory nature, the
security interests are to be transferred to the new lender along
with the transferred claim without any further actions (i.e. the
security interest transfers automatically). In contrast, with
regard to the regulation of the transfer of contractual position,
the new Civil Code stipulates that the securities of the contract
are terminated with the transfer of the contractual position;
should the security provider agree thereto, a new security interest
will come into existence at the same rank (and with the same terms)
as the original security interest.
How will this apparent contradiction be resolved? One may argue
that regulation of the security interest relates only to single
claims, not to entire contracts. Thus, if only one single claim is
transferred, then the security interest will remain for the benefit
of the new lender. Whereas, if an entire contract is transferred,
the security interest will remain for the new lender only if the
security provider agrees to it. This latter view is supported by
the regulation of the assignment: the new Civil Code stipulates
that in case of the assignment of a claim, the security interests
will continue to secure the assigned claim.
Such interpretation would render the transfer of credit facility
agreements among lenders impractical and highly dependent on the
security providers. Taking a more market-friendly view, one may
argue that the regulation of security interests is mandatory,
whereas the rules of transfer of contractual position are of a
contractual nature (i.e. the parties may contract otherwise). The
weakness of this interpretation is that this approach would lead to
a solution in which the parties could deprive the security provider
of its statutory approval right.
Unfortunately, it may well take several years until Hungarian
courts establish interpretative practice on this issue. Until then,
lenders may try protecting themselves with various contractual
provisions, such as contracting out of the rules on transfer of
contractual position or requesting advance approval to the transfer
from the security providers, etc.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.