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Hungary Bankruptcy
In 1986 Hungary became the first communist country to
enact a
bankruptcy law. The law sought to induce enterprises to
become
profitable and less reliant on state subsidies, which in
1987
consumed about 23 percent of the national budget. Under
the law,
creditors, unpaid suppliers, and other enterprises could
initiate
bankruptcy proceedings against any insolvent or delinquent
enterprise except agricultural collectives. The National
Reorganization and Liquidation Board, which oversaw the
bankruptcy process, attempted arbitration and
reorganization
before final liquidation. Workers who lost their jobs as a
result
of liquidation were entitled to unemployment benefits.
Although by 1987 claimants had filed bankruptcy actions
against fifty-five enterprises, including one large
construction
firm, the government had not enforced the bankruptcy law
vigorously. Government interference in the market remained
so
widespread that in bankruptcy proceedings unprofitable
enterprises could justifiably argue that their losses were
only
marginally related to efficiency or managerial decisions.
Despite
proclamations that profitability was the main standard for
judging enterprise performance, the government continued
to
compensate firms operating at a loss with subsidies, tax
breaks,
credits, preferential treatment in price setting, and
other
means. The government extracted the earnings of
profit-making
enterprises to fund these measures.
Data as of September 1989
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