Legal Solutions Supporting the Operation of Micro, Small and Medium-Sized Enterprises

Introduction

At the level of the European Union, a clear trend can be observed whereby, in order to strengthen the market position of small and medium-sized enterprises (SMEs), the EU seeks not only to provide financial support but also to reduce administrative burdens and simplify the special rules applicable to them. SMEs constitute a decisive part of the Hungarian economy; therefore, it is evidently in our fundamental interest – and in certain cases even our legal obligation – to integrate this trend into the domestic legal environment as well. The purpose of this article is to present two solutions within the Hungarian legal system that are intended to support this objective.

First, a statutory provision that has been in force for several decades will be examined. Although it may provide a significant advantage to the affected enterprise in practice, experience shows that it is often overlooked and not relied upon. Secondly, a more recent legal development will be presented, which may also place a diligent small or medium-sized enterprise in a more favourable position if it becomes the victim of a transaction involving defective performance.

Beyond the fact that EU legislation encourages Member States to improve the situation of SMEs, Hungarian lawmaking is also guided in this direction by a constitutional intention derived from the Fundamental Law. Article M) paragraph (2) of the Fundamental Law refers to the creation of fair conditions of economic competition and establishes the State’s obligation to balance market power relations. On this basis, the State is required to ensure equal competitive conditions for enterprises with smaller headcount and turnover by applying certain facilitations, particularly when SMEs act outside their core business activities.

Definition of SMEs

Under Act XXXIV of 2004 on Small and Medium-Sized Enterprises and the Support of Their Development, an SME is an enterprise that employs fewer than 250 persons and has an annual net turnover not exceeding the forint equivalent of EUR 50 million, or a balance sheet total not exceeding the forint equivalent of EUR 43 million. Within the SME category, a small enterprise is one that employs fewer than 50 persons and has a turnover or balance sheet total not exceeding the forint equivalent of EUR 10 million, while a micro-enterprise employs fewer than 10 persons and has a turnover or balance sheet total not exceeding the forint equivalent of EUR 2 million.

An important limitation is that an enterprise does not qualify as an SME if the State or a local government holds, directly or indirectly, a capital interest or voting rights of 25% or more, either individually or jointly. The Act also provides that where legislation refers to an “SME”, “micro, small and medium-sized enterprise”, or “small and medium-sized enterprise”, this shall be understood – unless otherwise provided by law – as an SME within the meaning of the Act, meaning that the above definition serves as a general point of reference in practice.

SMEs as Creditors in Insolvency Proceedings

Given the significant role played by small and medium-sized enterprises in the Hungarian economy, it is very common that, in the course of their active market operations, they become involved in insolvency proceedings. Among such proceedings, liquidation is encountered most frequently. From the perspective of an SME, it is of course preferable to appear in such proceedings as a creditor; however, practical experience shows that even creditor status does not guarantee full recovery, and therefore does not necessarily represent an economically winning position.

In such proceedings, a decisive issue is the rank of the creditor’s claim within the liquidation hierarchy, as the legislation on bankruptcy and liquidation proceedings sets out the order in which the debts of the insolvent entity must be satisfied. This ranking is determined on the basis of creditor claims filed in the proceedings. Creditors may file their claims with the liquidator within forty days following the publication of the decision ordering liquidation. Provided that the deadline is met and the registration fee and cost advance are fully paid, the liquidator examines the claim within forty-five days of its filing and notifies the creditor within fifteen days whether the claim has been registered or disputed.

The special relevance for SMEs arises precisely in connection with these ranking positions. The legislation establishes eight levels of priority, of which the fourth rank is of primary importance for the purposes of this article. At this level are placed, excluding bond-based claims, other claims of private individuals not arising from economic activity, as well as the claims of micro- and small enterprises and agricultural producers.

First, it is worth addressing the circle of eligible entities, as a significant difference becomes apparent compared to the broader SME category discussed earlier. This provision applies only to micro- and small enterprises, and not to medium-sized enterprises. The SME legislation distinguishes three categories based on headcount and turnover, including a micro-enterprise category that is not always reflected in everyday terminology.

This represents a substantial difference in scope, as by excluding medium-sized enterprises, the legislator has removed from this preferential position those SMEs employing between 50 and 250 persons or having annual turnover or balance sheet totals between the forint equivalent of EUR 10 million and EUR 50 million. Clearly, a significant number of enterprises thereby lose the opportunity to benefit from this ranking. At the same time, statistical data show that the overwhelming majority of SMEs fall within the micro- and small enterprise categories, making this provision applicable to most SMEs in practice.

A common interpretative error arises from the structure of the statutory wording, leading some to treat this ranking as a special category from which claims arising from the economic activity of micro- and small enterprises would be excluded. In reality, the restrictions set out in the first clause apply only to private individuals. Micro- and small enterprises may, without limitation, register any claims arising from their economic activities at this rank. Due to the specific nature of liquidation proceedings, this even includes claims that have not yet fallen due at the time of filing, as the opening of liquidation generally renders all existing claims immediately due.

If, however, this restrictive interpretation is mistakenly applied to micro- and small enterprises, their claims may only be registered as “other claims” at a lower priority level. Consequently, if the creditor proceeds with due care and avoids this error, it may expect satisfaction of its claim from a significantly more favourable ranking upon the conclusion of the liquidation proceedings.

SMEs as Consumers

Given that SMEs are, by definition, enterprises and are generally considered legal persons engaged in economic activity, Hungarian civil law traditionally treated them exclusively as enterprises. This classification is of particular importance because the Civil Code contains numerous special provisions governing contracts between consumers and enterprises.

As a result of an amendment to the Civil Code effective from 22 August 2025, the chapter on defective performance has been supplemented so that, for the purposes of this chapter, SMEs are to be regarded as consumers when acting outside their professional, independent occupational or business activities. Importantly, this approach does not adopt the restrictive solution seen in insolvency law and extends this protection to medium-sized enterprises as well.

As a consequence of this amendment, SMEs are entitled to the same rights in the field of warranty and product liability as natural person consumers in the traditional sense. It should be noted, however, that this special treatment does not alter the general definitions of “consumer” and “enterprise” in the interpretative provisions of the Civil Code. Accordingly, this reclassification applies exclusively within the chapter on defective performance. Outside this context, SMEs continue to be treated as enterprises.

The key innovations applicable to SMEs in this chapter include the application of the presumption of defective performance, specific rules on warranty rights, the presumption that defects notified within two months are communicated without delay, a two-year limitation period for warranty claims, the invalidity of contractual clauses derogating to the detriment of SMEs from statutory warranty and guarantee rules, and the extension of product liability rights allowing SMEs to demand repair or replacement directly from the manufacturer.

At the same time, not all consumer rights are extended to SMEs. For example, the unconditional right of withdrawal within fourteen days for distance or off-premises contracts remains reserved for natural person consumers. Similarly, mandatory warranty rules applicable to durable consumer goods were not originally extended to SMEs. This situation has recently changed, as a new government decree has expanded the scope of mandatory warranties to include micro-, small and medium-sized enterprises acting outside their business activities for purchases made after the entry into force of the amendment.

It remains an important practical question how these amendments will be implemented at lower regulatory levels and how SMEs will be able to enforce these rights in practice. It is also foreseeable that SMEs may increasingly make use of consumer protection dispute resolution mechanisms, including conciliation bodies, particularly in cases involving defective performance.

The Economic Significance of SME Legal Protection

As noted in the introduction, reducing the burdens on SMEs is a fundamental interest of the State. Strengthening the legal protection of micro-, small and medium-sized enterprises is expected to reduce their competitive disadvantage vis-à-vis large corporations, mitigate market distortions caused by dominant market power, and encourage SMEs to enter into transactions with greater confidence. This, in turn, can significantly contribute to economic growth. On this basis, it can be concluded that, as part of the ongoing trend, the legislator is likely to further expand the legal protection instruments available to SMEs in the future.

Authors of the article:

Dr. Gábor Kiss, Junior Associate
Dr. István Herdon LL.M., Managing Attorney-at-Law, Specialist in Economic Law

Original place of publication:
https://jogaszvilag.hu/cegvilag/jogi-megoldasok-a-mikro-kis-es-kozepvallalkozasok-mukodesenek-tamogatasara/