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Temporary Reduction of the Enforceability and Applicability of Late Payment Interest

Temporary Reduction of the Enforceability and Applicability of Late Payment Interest

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According to the Hungarian Civil Code, the debtor is liable to pay interest on any owed money that has fallen due from the first day of the delay in payment, even if the use of the money was free of charge until the delay.

The amount of the interest on payment is calculated by the central bank base rate in effect on the first day of the first calendar half-year in which the delay occurred.If the monetary debt is to be satisfied in a foreign currency, the interest shall be calculated by the base rate of the issuing central bank, or failing to this, by the money market rate. The obligation to pay interest shall be effective even if the obligor justifies his default.

According to the Great Commentary of the Civil Code, if the debtor was originally obliged to pay interest on the money debt and is late in paying the money, they shall pay "cumulative" interest. This cumulative interest is the sum of the original interest plus default interest at one-third of the base rate of the central bank in effect on the first day of the calendar half-year in which the default occurred, but not less than the legal rate of interest on late payments.

According to a new Government Decree issued in November 2022 on the different application of certain substantive provisions on interest on late payments in the event of an emergency, during the emergency, the default interest claim may be enforced up to a maximum of 25% per year, and for the exceeding part, it shall be deemed not to have been concluded.During the emergency, the maximum amount of default interest that may be charged is 25%. The provisions of the decree apply both to default interest due under existing contracts and to contracts to be concluded in the future.

Based on the current rules, the state of emergency is in effect until 29 May 2023. So, from 30 May 2023, interest on late payments in excess of 25% can be claimed and enforced, provided that the emergency is not extended.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

KCG Partners at a Glance

KCG Partners is a Hungarian business law firm providing a comprehensive range of legal services to international and local clients seeking local knowledge and global perspective. The firm comprises business-minded lawyers with sector-specific expertise, creating value for clients by applying a problem-solving approach and delivering innovative solutions.

The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

KCG Partners Law Firm is the result of the teamwork of passionate and talented lawyers guided by the same principles and sharing the same values: 

  • Our most valuable asset is our people. They are the engine of our business and the key to our success.
  • We push boundaries by looking for innovative solutions that can empower our clients to achieve greater results.
  • We place our experience, commitment and professionalism to your service.
  • We are driven by our vision to shape and lead the Hungarian legal market and become a first choice law firm in our practice areas.

Firm's website: http://www.kcgpartners.com