Managing Director Liability in Compulsory Dissolution and Insolvency

The fundamental concept of limited liability companies is that members are liable for the company’s obligations only up to the amount of their capital contributions. However, this limitation does not grant immunity to managing directors – particularly when the company becomes insolvent or is subject to compulsory dissolution. Below, we review the relevant statutory framework, liability regimes, and practical steps.

The Managing Director’s Duty of Care

General Standard of Care

Civil Code (Ptk.) Section 3:21 – The managing director must act in the interest of the legal entity, in compliance with legislation and the founding document.

Ptk. Section 3:24 – Management activities must be performed with the care generally expected of persons holding such a position. This is an objective standard: the benchmark is the conduct expected of a reasonably diligent person in that role, not the specific director’s individual abilities.

Content of the Duty of Care

The managing director must:

• Regularly monitor the company’s financial position
• Ensure the company can meet its obligations when due
• Take immediate action if the company’s solvency is at risk
• Fulfil obligations under the Accounting Act (Act C of 2000) regarding bookkeeping and financial reporting

Liability in Near-Insolvency Situations

Insolvency Act Section 33/A – Wrongful Trading

Act XLIX of 1991 on Bankruptcy and Liquidation Proceedings (Insolvency Act / Cstv.) Section 33/A is the key provision in Hungarian law on director liability in the period preceding insolvency:

Conditions for liability:

1. The company is wound up in liquidation proceedings
2. After the threat of insolvency materialised, the managing director
3. Failed to act with due regard for creditors’ interests, and thereby
4. Diminished the company’s assets, or partly or entirely frustrated the satisfaction of creditors

Legal consequence: The court – upon the request of the liquidator or any creditor – may order the managing director to pay the company’s debts.

What Constitutes “Threatened Insolvency”?

The Insolvency Act does not provide a precise definition, but based on case law, threatened insolvency means that:

• The company cannot settle its overdue debts
• The company’s liquidity position is persistently deteriorating
• With reasonable foresight, it can be established that the company will be unable to meet its obligations in the near future

The Concept of “Creditor Interest”

While the company is solvent, the managing director acts in the interest of the company (and indirectly, its members). From the moment of threatened insolvency, however, the direction of responsibility reverses: the director must prioritise creditors’ interests.

In practice, this means:

• It is prohibited to withdraw assets for the benefit of members (dividend payments, repayment of member loans)
• It is prohibited to prefer certain creditors to the detriment of others (selective payments)
• It is prohibited to dispose of the company’s assets below market value
• The director is obliged to consider filing for restructuring or liquidation proceedings and to do so if necessary

Compulsory Dissolution and Director Liability

What Is Compulsory Dissolution?

Compulsory dissolution (kényszertörlés) is a procedure under the Act on the Publicity of Company Information, Court Company Proceedings and Voluntary Dissolution (Act V of 2006 / Ctv.), in which the company court – not the tax authority – removes the company from the company register. Grounds for compulsory dissolution include:

• The company failed to comply with the company court’s order to restore lawful operation (Ctv. Section 116(1)(a))
• The company is not reachable at its registered seat and the court’s notice cannot be delivered (Ctv. Section 116(1)(d))
• The company failed to file annual financial statements for at least two consecutive business years (Ctv. Section 116(1)(c))

Ctv. Section 118/A – Presumption of Liability

In case of compulsory dissolution, Ctv. Section 118/A establishes a special liability rule:

Content of the statutory presumption:

If the company is deleted as a result of compulsory dissolution proceedings and unsatisfied debts remain, a rebuttable presumption applies against the former managing director that the director failed to fulfil the obligations set out in Ctv. Section 118/A(1), and that creditors’ damage was caused in causal connection with this failure.

Important clarifications:

• The presumption is rebuttable (praesumptio iuris tantum) – it does not constitute automatic or strict liability
• The presumption relates to causation, not to whether the damage was “intentional”
• The former managing director may prove that the damage occurred independently of their conduct
• The reversal of the burden of proof is the key distinction: it is not the creditor who must prove the director’s failure, but the director who must exonerate themselves

Disqualification

Under Ctv. Sections 9/B–9/C, a managing director involved in compulsory dissolution proceedings may be disqualified from holding director positions in other companies for a limited period. The conditions and duration of the disqualification depend on the specific circumstances (cooperation, degree of culpability).

The Civil Code Liability Framework

Ptk. Section 3:86 – Liability Towards the Company

The managing director is liable to the legal entity for damages caused during management activities under the rules on liability for breach of contract (Ptk. Section 6:142). This is contractual liability towards the company.

Ptk. Section 6:541 – Liability Towards Third Parties

The managing director is jointly and severally liable with the legal entity for damages caused to third parties during the legal entity’s activities, if the damage was caused intentionally. This provision constitutes the most important legal basis for “piercing limited liability” in Hungarian law – but it is not a general principle; it is limited to intentional harm.

Ptk. Section 3:118 – Members’ Liability

An important distinction: Ptk. Section 3:118 concerns the liability of members (shareholders), not directors. If a legal entity terminates without a legal successor, members are unlimitedly liable for the company’s debts if they abused their limited liability. This provision is the Hungarian equivalent of the Anglo-Saxon “piercing the corporate veil,” but it applies exclusively to members (not to managing directors).

Distinguishing Liquidation from Compulsory Dissolution

Criterion	Liquidation (Cstv.)	Compulsory Dissolution (Ctv.)
Legislation	Act XLIX of 1991	Act V of 2006
Initiated by	Creditor, debtor, or liquidator	The company court ex officio
Reason	Insolvency	Unlawful operation, operational deficiencies
Director liability	Cstv. Section 33/A (wrongful trading)	Ctv. Section 118/A (presumption)
Burden of proof	On the creditor/liquidator	Reversed: on the former director

Limits of Enforcement

If the court establishes the managing director’s personal liability, enforcement of the judgment is governed by Act LIII of 1994 on Judicial Enforcement (Vht.). Enforcement is not unlimited:

• Movable assets essential for the debtor’s subsistence are exempt from enforcement (Vht. Section 90)
• Enforcement against residential property is subject to special rules (Vht. Section 137/A) – registration of the enforcement right and auction of the property are tied to specific conditions
• Deductions from wages and other regular income are limited to the proportions specified by law (Vht. Sections 65–68)

Practical Steps for Managing Directors

Prevention

1. Financial monitoring: regular cash-flow analysis and liquidity planning
2. Documentation: written recording of all business decisions with stated reasons – this forms the basis for potential exoneration
3. Accounting obligations: timely preparation and filing of financial statements – failure to do so is in itself a ground for compulsory dissolution
4. Legal counsel: engaging a lawyer to identify threatened insolvency and determine the correct course of action

When Threatened Insolvency Is Identified

1. Immediate measures: ensuring the primacy of creditors’ interests
2. Consider restructuring proceedings: filing for restructuring under Cstv. Section 7 to reorganise the company
3. Prohibition on selective payments: do not pay certain creditors (especially related parties) to the detriment of others
4. Prohibition on asset stripping: no assets may be withdrawn from the company for the benefit of members or related persons

During Compulsory Dissolution Proceedings

1. Duty to cooperate: respond immediately to the company court’s communications
2. Preservation of records: preserve accounting documents and business records – their absence makes exoneration more difficult
3. Legal representation: immediately engage a lawyer to prepare evidence for rebutting the presumption

Summary

Managing director liability is not a recent development and has not “become stricter from 2026” – the Civil Code (2014), the Insolvency Act, and the Company Registration Act have long contained the relevant liability rules. What remains consistently applicable:

• Cstv. Section 33/A (wrongful trading) holds the director liable in liquidation if they failed to act in creditors’ interests during threatened insolvency
• Ctv. Section 118/A establishes a rebuttable presumption against the director in compulsory dissolution – but this is neither automatic nor strict liability
• Ptk. Section 6:541 establishes personal, joint and several liability with the company towards third parties in cases of intentional harm
• Enforcement is subject to statutory limits (Vht.)

The only way to avoid liability is prevention: diligent management, continuous financial monitoring, documentation, and immediately prioritising creditors’ interests when threatened insolvency is identified. If compulsory dissolution is already underway, the former director must prove that their conduct did not cause the creditors’ damage – the chances of a successful rebuttal depend on prior diligent documentation.