A look at corporate, personal and, where relevant, partnership insolvency proceedings in Cyprus, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Διακανονισμοί και αναδιοργανώσεις
Arrangements and reconstructions
- Under the Cyprus Companies Law, Cap. 113, as amended, the terms "arrangements" and/or "reconstructions" are used to describe (amongst others) any form of internal reorganisation of a Cyprus company or its affairs including schemes for the amalgamation of two or more companies. Schemes can be used for solvent reorganisations of group structures, as well as for insolvent restructurings.
- Where a compromise or arrangement is proposed between a company and its creditors (or any class of them) or between the company and its members (or any class of them), the court may, following the filing of an application for the same by the company, or by any of its creditors or members (or, where the company is in liquidation, by the appointed liquidator) order meetings at which the proposal is voted on.
- A majority in value of the creditors or class of creditors or in number of votes of members or class of members, as applicable, present and voting at the meeting must approve the proposed compromise or arrangement for it to be binding. If subsequently sanctioned by the court, such compromise or arrangement becomes binding on all creditors (or the class of creditors as the case may be) or on the members (or the class of members as the case may be).
- There is no moratorium during this process. The procedure is controlled by the company subject to the supervision of the court. It is flexible and, subject to proper preparation and planning, may be completed within a few months.
- Examinership is a process intended to facilitate the survival of a viable company and the whole or any part of its undertaking as a going concern, by providing a period of protection from its creditors.
- In accordance with the provisions of the Cyprus Companies Law, Cap. 113, as amended, the court may, upon the filing and/or submission of an application by the company and/or a creditor or potential or future creditor of the company or a member who holds not less than one tenth of the paid-up capital of the company and has the right to vote at the general meetings of the company, or a guarantor of any liabilities of the company, issue an order appointing a licensed insolvency practitioner as the examiner.
- The application for the appointment of an examiner must be accompanied by an independent expert’s report in relation to the financial standing of the company on which the court will rely in order to decide whether there is a reasonable prospect of survival of the company as a going concern.
- The examiner’s role is to prepare proposals for a compromise and /or scheme of arrangement of the company with its creditors and/or fulfil any other duties that the court may determine.
- The court will issue an order appointing an examiner, only where the court deems that there is a reasonable prospect of the survival of the company and of all or any part of its undertaking as a going concern. The court will take into consideration whether the company is or is likely to be unable to pay its debts (in accordance with the relevant provisions of the Companies Law), whether any resolution regarding the liquidation of the company has been approved and published in the Official Gazette of the Republic, and whether any decree has been issued for the liquidation of the company.
- Once the company is placed into examinership, it is considered to be under the protection of the court for a period of 4 months with a right of extension, during which the company is protected from creditor action and (amongst others) no liquidation proceedings can be commenced against the company, no receiver can be appointed on any part of the company’s assets or business, no steps may be taken for the enforcement of any judgments against the company or where any claim against the company is secured by a mortgage, lien or other charge or pledge on or affecting the company’s property or income, no action may be taken for the enforcement of all or any part of such security, except with the consent of the examiner.
Αναγκαστική εκκαθάριση από το δικαστήριο
Compulsory liquidation / Winding up
- Compulsory liquidation (also known as compulsory winding up or winding up by the court) is a process where a company is wound-up following a court order, upon the filing and/or submission of a relevant application by (amongst others) the company or any of its creditors or contributors or by the examiner, by an administrator of another Member State or an official receiver in accordance with the provisions of the Cyprus Companies Law, Cap. 113, as amended.
- The grounds for compulsory liquidation/winding up by the court are provided in the relevant section of the Companies Law and include (amongst others) the company being unable to pay its debts. The Companies Law sets out the circumstances under which a company is deemed to be ‘unable to pay its debts’.
- The official receiver is appointed as liquidator and on entry into liquidation, the powers of the company’s directors cease. At a later stage a licensed insolvency practitioner may be appointed to act as liquidator. The licensed insolvency practitioner will either be appointed by the court upon request by the official receiver or selected at the first meeting of creditors and contributors.
- It is unusual for a company to trade in liquidation. Instead, the liquidator’s role is to liquidate the company’s assets and distribute the company’s property to its creditors in accordance with and subject to the relevant provisions of the Companies Law and settle all of the affairs of the company. Winding up includes the entire movable and immovable property of the company. Once all distributions have been made, the company is dissolved.
- Compulsory liquidation/winding up results in a stay on actions against the company however it does not prevent secured creditors from enforcing their security.
Voluntary Liquidation / Winding up (“VL”)
- Voluntary liquidation (also known as voluntary winding up) is a process commenced by a special resolution taken by the company’s members and/or its creditors.
- Voluntary liquidation initiated by the members is available provided that the company is solvent, such that it is able to pay all of its debts within one year from the commencement of the liquidation procedure.
- A company’s solvency is confirmed by the company’s board of directors who are required to execute an affidavit confirming the same.
- Where a company is insolvent because its liabilities exceed its assets, in addition to convening a meeting of its members, the company must arrange to also convene a meeting of its creditors in order for the directors of the company to present to the creditors a full statement of the position of the company’s affairs together with a list of the creditors of the company and the estimated amount of their claims and to give the creditors the opportunity to nominate a person to be appointed as the liquidator (Creditors’ voluntary winding up).
- A licensed insolvency practitioner is appointed to act as liquidator to settle the affairs of the company and distribute its assets and at that time the directors’ and members’ powers cease.
- It is unusual for a company to trade in liquidation. Instead, the liquidator’s role is to realise the company’s assets and distribute the proceeds to creditors in accordance with and subject to the provisions of the Cyprus Companies Law, Cap. 113, as amended.
- Once all distributions have been made, the liquidator convenes a General Meeting and presents the final accounts of the company and the company will be considered as dissolved 3 months after its final accounts and the report of the final meeting have been submitted to the Insolvency Service Department of the Registrar of Companies and Official Receiver.
- Voluntary liquidation does not provide an automatic stay on actions against the company. However, the court may grant a stay either generally or in relation to specific claims on an application being made to the court.
Διάταγμα απαλλαγής οφειλών / προσωπικά σχέδια αποπληρωμής
Debt Relief Order (DRO) / Personal Repayment Plans
- Under this procedure insolvent debtors that are natural persons can be discharged from specific debts.
- Insolvent debtors need to meet the eligibility criteria set by the Insolvency of Natural Persons Law 65(I)/2015, which provides that such debtor (on issue of a debt relief order) must have no more than EUR25.000,00 of unsecured debt (such amount to include the unsecured element (if any) of any secured debt).
- The procedure starts with the submission of a petition by the debtor to the Insolvency Service, which is required to include (amongst others) a statement of their assets and liabilities, together with the details of any alternative debt repayment solutions that have been identified/pursued.
- If the Insolvency Service considers the application to be eligible, the Insolvency Service or the debtor submits a petition to the court, which may then issue a DRO.
- A debtor who meets the eligibility criteria and wishes to restructure their debts by implementing a personal repayment plan is required to report fully on their financial standing to a licensed insolvency practitioner who shall then inform the debtor whether he/she meet the eligibility criteria for a personal repayment plan. The debtor confirms the appointment of such insolvency practitioner who will act on their behalf by signing a representation agreement.
- The insolvency practitioner will prepare and submit a repayment plan proposal to the debtor’s creditors in accordance with the provisions of the Insolvency of Natural Persons Law 65(I)/2015. If the creditors do not consent to the proposed repayment plan, the debtor may, subject to and in accordance with the provisions of the Insolvency of Natural Persons Law 65(I)/2015, file an ex parte application to the court seeking to impose the personal repayment plan on all of the creditors.
- The Insolvency of Natural Persons Law 65(I)/2015 also provides for combined repayment plans for natural persons whose primary residence is mortgaged as security for the debts of very small businesses. Through this process, the debtor can seek an order of the court stating that the insolvency practitioner appointed by the debtor (to prepare and propose the personal repayment plan) be appointed as examiner of the very small business.
Πτώχευση από οφειλέτη / πτώχευση από πιστωτή
- A debtor or a creditor of such debtor is entitled to petition the court for the issue of a bankruptcy order. Once the Court issues the bankruptcy order, the property of the bankrupt is passed on to the bankruptcy administrator and is distributed between its creditors.
- The Court may, after the filing of the bankruptcy petition and before the issue of the bankruptcy order, appoint an official receiver or a licensed insolvency practitioner as a temporary administrator of the debtor’s property.
- Once the bankruptcy order is issued, the official receiver is appointed as liquidator of the property of the bankrupt. Creditors may appoint a licensed insolvency practitioner as a private administrator during a creditors’ meeting convened by the official receiver at the creditors’ request.
- To submit a petition to the Court for a debtor’s bankruptcy, the requirements of the Cyprus Bankruptcy Law, Cap.5 must be satisfied. Principally, the total unsecured debts of the relevant debtor must exceed the amount of EUR 15.000.
- The Court may, upon request of any interested party, annul the bankruptcy of the debtor, if it considers that the debtor should not have been declared bankrupt or if the debts of the bankrupt have been fully paid or have been settled, or if the creditors have consented to the annulment of the order.
- Three years after the issue of a bankruptcy order, the bankrupt is automatically discharged from its verifiable debts. If the bankruptcy property has not been distributed in its entirety, it shall remain in the hands of the administrator for the benefit of the bankrupt’s creditors.
Διάλυση ομορρύθμων συνεταιρισμών-
1. Διάλυση με λήξη ή ειδοποίηση
2. Διάλυση λόγω πτώχευσης, θανάτου ή επιβάρυνσης
Dissolution of unlimited liability partnerships
1. Dissolution with expiry or notice
2. Dissolution as a result of bankruptcy, death or encumbrance
Διάλυση ετερορρύθμων συνεταιρισμών
1. Διάλυση με λήξη ή ειδοποίηση
2. Διάλυση λόγω επιβάρυνσης
Dissolution of limited liability partnerships
1. Dissolution with expiry or notice
2. Dissolution as a result of encumbrance
A partnership, subject to the provisions of any agreement between the partners, can be dissolved in the following circumstances:
- if the partnership was established for a specific period, on or after the expiration of that period; or
- if the partnership was established for a single activity or business, on termination of that activity or business; or
- if the partnership was established for an indefinite period of time, from the date of dissolution on the notice sent by a partner to the other partners or, if no such date is indicated, from the date of notification; or
- by the death or bankruptcy of one of the partners, however this does not apply to limited liability partnerships; or
- at the option of the other partners, if any partner suffers their share of the partnership property to be charged under law for their own separate debt; or
- if any event occurs that makes all or any of the work of the partnership illegal and/or for the partners thereof to carry out such work; or
- on the filing of an application to the court by a partner, the court may order the dissolution of the partnership in certain circumstances.
Διαχειριστής / Παραλήπτης
Receiver / manager
- A receiver or manager of the property of a company can be appointed either (i) by the court; or (ii) by a creditor who holds a charge over the property of the company (under the powers contained in the charge).
- The receiver or manager is generally appointed to realise the assets subject to the charge and discharge the secured debt out of the proceeds of sale. The contractual powers given to receivers are extensive and include powers to preserve, manage and/or sell the charged assets of the company in the event of a default.
- Powers to appoint receivers/managers are ordinarily found in fixed and floating charges. A floating charge is a form of charge over one or more classes of assets of a company that gives the company the freedom to deal with the assets during the ordinary course of its business until a specified event occurs which causes the charge to "crystallise" and become a fixed charge, preventing any further dealing by the company with the charged assets.
- A licensed insolvency practitioner may be appointed as a receiver/manager of the company’s property.
- The appointment of a receiver does not provide any protection against actions by other creditors.
Διαχειριστής στη βάση έγγραφου υποθήκης
Receiver of a mortgaged immovable property
- A receiver may be appointed over a mortgaged immovable property if the mortgage agreement makes provision for a right of the mortgagee to make such an appointment.
- In a fixed charge such as a mortgage agreement, the receiver is appointed only over the specific asset caught under the said charge. Appointments of receivers under mortgage agreements are very rare in Cyprus.
Εκποίηση ενυπόθηκου ακινήτου
Sale of mortgaged property
- The sale procedure is initiated by the mortgagee serving a written notice on the mortgagor requesting that the mortgagor settle its debt within one month, and advising the mortgagor that in default of repayment, the mortgagee will apply to the Director of the Department of Lands and Surveys requesting the sale of the mortgaged property.
- If the mortgagor fails to satisfy the mortgaged debt within one month following service of the written notice, the mortgagee is entitled to file an application for the sale of the mortgaged property with the Lands Office of the district where the property is situated.
- A mortgagee may also initiate the sale of a mortgaged property in the event of the mortgagor’s default in payment, through public auction where the reserve price of sale by public auction is fixed by the Director of the Department of Lands and Surveys.
- The reserve price is the lowest first bid accepted for the sale of such immovable property by public auction. Where no bid is made that is equal to or higher than the reserve sale price, the sale is deemed to be abortive and the Director of the Department of Lands and Surveys may, for any subsequent public auction, which shall take place within a reasonable period of time from the first auction, reduce the reserve sale price to an amount at its discretion.
- The Director of the Department of Lands and Surveys is required to fix the date of sale and notify this to all interested parties. The auction will proceed unless the mortgagor, or any other person appearing on behalf of the mortgagor, pays to the auctioneer such amount to settle the debt and all expenses of the intended sale.
- In addition to the above procedure, the mortgagee also has the option to proceed with foreclosure of the mortgaged property in accordance with the more recent foreclosure regime established following the amendments to the Cyprus Transfer and Mortgage of Immovable Properties Law of 1965, as amended, which is less time consuming given that it is driven by the mortgagee privately and without the need to involve significantly the Department of Lands and Surveys.
EU Directive Implementation
The Ministry of Finance is preparing various proposals for amendment of the insolvency and foreclosure laws in Cyprus. The EU Directive on Restructuring and Insolvency (the "Insolvency Directive") requires EU Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Insolvency Directive is to reduce barriers to the free flow of capital stemming from differences in EU Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in EU Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Implementation in Cyprus
The Insolvency Directive has not yet been transposed into national law by Cyprus.
The European Commission has granted Cyprus an extension of 11 months for the transposition of the Insolvency Directive into national legislation. The bills prepared in this respect are currently under discussion and evaluation by the relevant authorities, having a final deadline for implementation in June 2022.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
The EU Regulation on Insolvency Proceedings (the "Insolvency Regulation") applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.
Recognition of third country insolvency processes
Given that Cyprus has not adopted the UNCITRAL Model Law on Cross-Border Insolvency, third country insolvency processes and judgments do not have direct operation and/or applicability in Cyprus and in the absence of an applicable statute and/or a bilateral treaty including provisions for the recognition and enforcement of foreign judgments, Cyprus courts may turn to common law principles, such as the long-established principle of universalism, when examining whether to recognise a third country insolvency procedure. As a result of the applicability of such common law principles, the courts in Cyprus are more likely than not to find in favour of a request for cross-border judicial co-operation and assistance.
Foreign insolvency proceedings are recognised by the Cyprus courts when the proceedings have been commenced and continued in accordance with the law of the country of the company and there is no domestic law which prevents recognition. The appointment of a foreign liquidator will also be recognised without the requirement for the liquidator to apply for formal recognition. If there are simultaneous proceedings in Cyprus and abroad, the Cyprus courts will consider the local proceedings as subsidiary to the foreign proceedings.
Foreign creditors can prove their claim in a liquidation in Cyprus under the normal procedure. In the event of concurrent liquidation of the same company in the foreign jurisdiction, a creditor who proved their claim in Cyprus will only receive a share in any distribution after any amount received in the foreign proceedings has been taken into account.
Notwithstanding the above, matters concerned with recognition of third country insolvency processes are yet to be heavily tested before the Cyprus courts and therefore there remains a degree of uncertainty in the procedural detail and outcome of such proceedings.
Insolvency changes in response to COVID-19
For more information on changes to insolvency law in Cyprus as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.
With thanks to Alexandros Alexandrou and Andreas Paraskeva of Tornaritis for writing this chapter of the dictionary.