Cyprus Corporate Insolvency & Recovery

The International Comparative Legal Guide to:

A practical cross-border insight into corporate recovery and insolvency work

Published by Global Legal Group, with contributions from:

9th Edition

Corporate Recovery & Insolvency 2015

ICLGAli Budiardjo, Nugroho, ReksodiputroAnastasios Antoniou LLCAtlantik Legal ServicesBaker & PartnersBonelli Erede PappalardoBredin PratCampbellsClifford Chance LLCDebarliev, Dameski & Kelesoska Attorneys at LawDhir & Dhir AssociatesEl-Borai & PartnersFellner Wratzfeld & Partners Rechtsanwälte GmbHFerraiuoli LLCGallGilbert + TobinGorrissen FederspielHengeler MuellerINFRALEX

Kvale Advokatfirma DALenz & StaehelinNishimura & AsahiOdvetniška družba Špec o.p. d.o.o.Olswang LLPOsler, Hoskin & Harcourt LLPPachiu & AssociatesPaul, Weiss, Rifkind, Wharton & Garrison LLPPinheiro Neto AdvogadosRESOR N.V.Rivera Gaxiola y CarrascoSedgwick Chudleigh Ltd.Slaughter and MayTonucci & PartnersUría MenéndezUría Menéndez – Proença de CarvalhoWhite & CaseYonev Valkov Nenov

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DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

General Chapters:

Country Question and Answer Chapters: 3 Albania Tonucci & Partners: Artur Asllani & Ervin Bano 11

4 Australia Gilbert + Tobin: Dominic Emmett & Nicholas Edwards 17

5 Austria Fellner Wratzfeld & Partners Rechtsanwälte GmbH: Markus Fellner & Florian Kranebitter 24

6 Bermuda Sedgwick Chudleigh Ltd.: Alex Potts & Nick Miles 30

7 Brazil Pinheiro Neto Advogados: Luiz Fernando Valente de Paiva & André Moraes Marques 40

8 Bulgaria Yonev Valkov Nenov: Todor Nenov & Pavel Tsanov 46

9 Canada Osler, Hoskin & Harcourt LLP: Tracy C. Sandler & Andrea Lockhart 52

10 Cayman Islands Campbells: Ross McDonough & Guy Cowan 60

11 Cyprus Anastasios Antoniou LLC: Anastasios A. Antoniou & Michalis Michaelides 66

12 Denmark Gorrissen Federspiel: John Sommer Schmidt & Morten Nybom Bethe 74

13 Egypt El-Borai & Partners: Dr. Ahmed El Borai & Dr. Ramy El Borai 80

14 England & Wales Slaughter and May: Tom Vickers & Lynda Elms 86

15 France Bredin Prat: Nicolas Laurent & Olivier Puech 98

16 Germany Hengeler Mueller: Dr. Ulrich Blech 104

17 Hong Kong Gall: Nick Gall & Anjelica Tang 112

18 Iceland Atlantik Legal Services: Eiríkur Elís Þorláksson & Benedetto Valur Nardini 119

19 India Dhir & Dhir Associates: Nilesh Sharma & Sandeep Kumar Gupta 124

20 Indonesia Ali Budiardjo, Nugroho, Reksodiputro: Theodoor Bakker & Herry Kurniawan 130

21 Italy Bonelli Erede Pappalardo: Vittorio Lupoli & Lucio Guttilla 135

22 Japan Nishimura & Asahi: Yoshinori Ono & Hiroshi Mori 145

23 Jersey Baker & Partners: William Redgrave & Ed Shorrock 152

24 Macedonia Debarliev, Dameski & Kelesoska Attorneys at Law: Dragan Dameski & Jasmina Ilieva Jovanovikj 157

25 Mexico Rivera Gaxiola y Carrasco: Fabián Bartolini Esparza & Carlos F. Chapela De Alvarado 163

26 Netherlands RESOR N.V.: Lucas Kortmann & Tom Booms 172

27 Norway Kvale Advokatfirma DA: Stine D. Snertingdalen & Ingrid E. S. Tronshaug 179

28 Portugal Uría Menéndez – Proença de Carvalho: Pedro Ferreira Malaquias & David Sequeira Dinis 185

29 Puerto Rico Ferraiuoli LLC: Sonia Colón 191

30 Romania Pachiu & Associates: Ioana Iovanesc & Marius Nita 196

31 Russia INFRALEX: Artem Kukin & Stanislav Petrov 203

1 Recast EC Insolvency Regulation – Progress So Far and Remaining Steps to Adoption – Tom Vickers & Lynda Elms, Slaughter and May 1

2 Restructuring Bonds: Legal Issues Under English Law – Alicia Videon & Julian Turner, Olswang LLP 5

Contributing EditorsTom Vickers, Partner, Slaughter and May, and Sarah Paterson, Senior Consultant to Slaughter and May and Assistant Professor in Law, LSE

Head of Business DevelopmentDror Levy

Sales DirectorFlorjan Osmani

Commercial DirectorAntony Dine

Account DirectorsOliver Smith, Rory Smith

Senior Account ManagerMaria Lopez

Sales Support ManagerToni Hayward

Sub EditorSam Friend

Senior EditorSuzie Levy

Group Consulting EditorAlan Falach

Group PublisherRichard Firth

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: [email protected]: www.glgroup.co.uk

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Printed byInformation Press LtdJune 2015

Copyright © 2015Global Legal Group Ltd.All rights reservedNo photocopying

ISBN 978-1-910083-50-5ISSN 1754-0097

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The International Comparative Legal Guide to: Corporate Recovery & Insolvency 2015

Continued Overleaf

The International Comparative Legal Guide to:

Country Question and Answer Chapters:

The International Comparative Legal Guide to: Corporate Recovery & Insolvency 2015

32 Slovenia Odvetniška družba Špec o.p. d.o.o.: Boštjan Špec 209

33 Spain Uría Menéndez: Alberto Núñez-Lagos Burguera & Ángel Alonso Hernández 215

34 Sweden White & Case: Carl Hugo Parment & Michael Gentili 224

35 Switzerland Lenz & Staehelin: David Ledermann & Tanja Luginbühl 230

36 Ukraine Clifford Chance LLC: Olexiy Soshenko & Andrii Grebonkin 238

37 USA Paul, Weiss, Rifkind, Wharton & Garrison LLP: Alan W. Kornberg & Elizabeth R. McColm 245

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Chapter 11

Anastasios Antoniou LLC

Anastasios A. Antoniou

Michalis Michaelides

Cyprus

A pledge is the delivery of possession of an asset to the creditor by way of security but with ownership of the asset remaining with the pledgor. This contrasts with a mortgage where ownership of the asset is usually passed to the mortgagee and possession remains with the mortgagor. Pledges over shares in Cypriot companies need not be registered with the Registrar, as long as all other requirements for the perfection of the pledge are met. In addition, charges that fall within the scope of the national legislation transposing Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements, as amended, need not be registered with the Registrar.Under a contractual or equitable lien, the creditor can possess the assets concerned until the debtor settles its debts, but without affording any right to the creditor to sell such assets.

1.2 In what circumstances might transactions entered into whilst the company is in financial difficulties be vulnerable to attack and what remedies are available from the court?

There are various provisions in Cap. 113, which may invalidate a charge granted by the company or any other disposition it has made or any debt which it has incurred. Failure to register a charge as provided under Cap. 113 would make the charge void against the liquidator and any creditor of the company (section 90, Cap. 113), but without prejudice to any contract or obligation for repayment of the debt, which would be immediately payable.According to section 301, any conveyance, mortgage, delivery of goods, payment, execution, or other act relating to property made or done by or against a company within six months before the commencement of its winding up will, in the event of the company being wound up, be deemed a ‘fraudulent preference’ of its creditors and be invalidated accordingly.On the question of fraudulent preference, the court looks at the dominant or real intention and not at the result. The onus is on those who claim to avoid the transaction to establish what the debtor really intended and that the real intention was to prefer. The onus is only discharged when the court, on review of all the circumstances, is satisfied that the dominant intention to prefer was present. The counterparty to such a transaction will not be protected merely by reason of having acted in good faith and for value.According to section 303, where a company is being wound up, a floating charge on the undertaking or property of the company created within 12 months of the commencement of the winding up will, unless it is proved that immediately after the creation of the

1 Issues Arising When a Company is in Financial Difficulties

1.1 How does a creditor take security over assets in Cyprus?

The applicable legislation in Cyprus over corporate recovery and insolvency is the Companies Law, Cap.113, as amended (Cap. 113). Generally, a creditor is able to take security over assets through:■ a mortgage (legal or equitable) over immovable property;■ a charge (floating or fixed);■ a pledge; or■ a lien.For charges over the assets of a company to be enforced, they must be registered in the records of the Department of the Registrar of Companies and Official Receiver (the Registrar). Such registration must take place within 21 days from the date the charge arises (section 91, Cap. 113). Where a company fails to register a charge, any other person with an interest in the charge may submit details to the Registrar of Companies for its registration and to recover relevant registration costs from the company. The court has the power to extend the time for registration of a charge, prior to or after the lapse of the 21-day period, where it so holds appropriate.Charges and other rights over immovable property, including mortgages, should be registered with the Department of Lands and Surveys. A legal mortgage over immovable property would see the mortgaged asset transferred to the creditor’s name with a right of redemption.A legal mortgage affords a creditor (lender) with a legal interest in the mortgaged property until full repayment of the loan or the performance of some other obligation. A mortgage does not constitute an estate in land but rather a contractual right for the benefit of the mortgagee and a charge on the immovable property.On the other hand, an equitable mortgage transfers an equitable interest in the property to the lender until full payment of the debt or the performance of some other obligation.A fixed charge attaches immediately to the charged asset provided that the asset is, or is capable of being, ascertained and definite. It is important for the effectiveness of the fixed charge that the charged assets are identified as precisely as possible.A floating charge is a security interest, generally over all the company’s assets, floating until default occurs or until the company goes into liquidation, at which time the charge is perfected.

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2 Formal Procedures

2.1 What are the main types of formal procedures available for companies in financial difficulties in Cyprus and can any of these procedures be used in a restructuring?

Cap. 113 has undergone substantial amendments in 2015 with respect to corporate recovery and insolvency. Specifically, the formal procedures provided under Cap. 113 in relation to companies in financial difficulties are:■ Examinership.■ Arrangements and reorganisations.■ Receivership.■ Voluntary Winding-Up.■ Compulsory Winding-Up.The main amendment brought about in 2015 has resulted in the following major changes introduced to the liquidation of companies:(i) for a company to be deemed unable to pay its debts the

competent Court must be satisfied that the asset value of the company amounts to less than its liabilities, taking into account potential and future liabilities;

(ii) a liquidator can be appointed by both a competent court as well as a duly convened meeting of creditors and contributors;

(iii) upon the issuing of an order winding up a company, the Official Receiver can be appointed as the permanent liquidator and not the temporary one, as had previously been the case;

(iv) an insolvency advisor can be appointed as liquidator;(v) a court order can be issued affording the liquidator the

authority to dispose of the company’s secured assets, where the Court is satisfied that such disposal is advantageous to liquidation compared to the disposal of other assets; and

(vi) net proceeds from the sale of secured assets are used to first repay the security concerned, with the balance used to satisfy unsecured creditors.

2.2 What are the tests for insolvency in Cyprus?

A company is insolvent when one of the following applies:■ a creditor to whom the company is indebted in a sum

exceeding EUR 5,000 has served on the company a demand in writing for the payment of the outstanding amount and within three weeks the company fails to pay the sum due;

■ a judgment creditor has tried to enforce his judgment by execution on the company’s property and the execution has failed to meet the debt; or

■ the court is satisfied that the company is unable to pay its debts.

The 2015 amendments over Cap. 113 have extended the definition of a company’s inability to pay its debts vis-à-vis the satisfaction of the court over such inability.A company shall be deemed to be unable to pay its debts: (a) if a creditor, by assignment or otherwise, to whom the

company is indebted in a sum exceeding five thousand euros (EUR 5,000) then due on the company, by leaving at the registered office of the company, a demand requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;

charge the company was solvent, be invalid, except to the extent of any cash paid to the company at the time of or subsequently to the creation of and in consideration for the charge.The onus of proving the company’s solvency is on the debenture holder who seeks to support his floating charge. If the liquidator can prove fraudulent trading against a director or other officer of the company, the court may order that person to be personally liable for the debt. The liquidator has the right to disclaim onerous property (e.g., unprofitable contracts and property which cannot be sold).During the four-month examinership period over which a company facing financial difficulties comes under the protection of the court, following a relevant application and approval by the court of same, the following are prevented from taking place:■ the appointment of a receiver over the assets of the company;■ the winding up of the company;■ the disposal of charged assets without consent from the

examiner; and■ any action against the company.

1.3 What are the liabilities of directors (in particular civil, criminal or disqualification) for continuing to trade whilst a company is in financial difficulties in Cyprus?

Where a director of a company makes a declaration of insolvency pursuant to section 266 of Cap. 113 without having reasonable grounds for the opinion that the company will be able to pay its debts in full within the period specified in the declaration, such director shall be criminally liable for conviction to imprisonment for a period not exceeding two years or to a fine not exceeding EUR 2,562, or to both such penalties. Where the company is eventually wound up in pursuance of a resolution passed within the period of five weeks after the making of the aforementioned declaration, but its debts are not paid or provided for in full within the period stated in the declaration, it shall be presumed until the contrary is established that the director did not have reasonable grounds for his opinion. In accordance with section 311 of Cap. 113, if in the course of the winding-up of a company it appears that any business of the company has been carried on with an intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court, on the application of the official receiver, or the liquidator or any creditor or contributory of the company may, if it thinks it proper, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability.If during the winding-up of a company it appears to the court, following a relevant petition by the official receiver, liquidator or any creditor or contributory, that a director (past or present) abused or withheld or is accountable for any funds or property of the company, or that such director has breached his duties of trust towards the company, the court may order for the return of such funds or property, with interest, or pay damages to the company.According to section 301, Cap. 113, any conveyance, mortgage, delivery of goods, payment, execution, or other act relating to property made or done by or against a company within six months before the commencement of its winding up will, in the event of the company being wound up, be deemed a ‘fraudulent preference’ of its creditors and be invalidated accordingly. If the liquidator can prove fraudulent trading against a director or other officer of the company, the court may order that person to be personally liable for the debt.

Anastasios Antoniou LLC Cyprus


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(f) an examiner; or(g) the official receiver according to subsection (1) of section

222 of Cap. 113,or all or any one of these persons, together or separately. Where it is proposed to wind up a company voluntarily, the directors of the company may make a statutory declaration to the effect that they have made a full inquiry into the affairs of the company, and that, having so done, they have formed the opinion that the company will be able to pay its debts in full within such period not exceeding 12 months from the commencement of the winding up as may be specified in the declaration. The members of a company in a general meeting shall appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company, and may fix the remuneration to be paid to him or them. On the appointment of a liquidator all the powers of the directors shall cease, except so far as the company in general meeting or the liquidator sanctions the continuance thereof.

2.4 Please describe briefly how the company is placed into each procedure.

(a) ExaminershipUnder the examinership framework introduced in 2015, a company facing financial difficulties, upon the application of the company itself, its shareholders (holding over 10%) or a guarantor over its liabilities can apply to the court with a view to appoint an examiner. (b) Arrangements and reorganisationsArrangements and reorganisations are instituted by an application to the court for an order for a meeting of the creditors or members of the company to be convened, in whatever way the court directs, to consider proposals for a compromise or reconstruction. The application may be made by the company, a creditor, a member or, in the case of a company being wound up, the liquidator.The notices of the meetings sent to creditors and members must be accompanied by a statement explaining the effects of the proposals. This statement must identify any interests of the directors and the effect of the proposals on those interests.If a majority in value of the creditors or class of creditors or in number of votes of the members or class of members, as the case may be, present and vote either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company. (c) Receivership Receivership can be initiated in accordance with the terms of the charge under which a receiver is to be appointed, usually by a written notice of appointment on behalf of a secured creditor.(d) Winding upWhere the Court has made a winding-up order or appointed a provisional liquidator, unless the Court thinks fit to order otherwise and orders in such manner, a statement in the prescribed form is prepared and submitted to the official receiver, in relation to the affairs of the company, verified by affidavit and includes the following: (a) details of the assets, debts and liabilities of the company; (b) the names, residence and occupations of its creditors; (c) the securities held by them, respectively; (d) the dates when the securities were respectively given; and

(b) if execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part;

(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts as they fall due, and, in determining whether a company is unable to pay its debts as they fall due, the Court shall take into account the contingent and prospective liabilities of the company; or

(d) if it is proved to the satisfaction of the Court that the value of the assets of the company is less than the amount of its liabilities, taking into account the contingent and prospective liabilities of the company.

2.3 On what grounds can the company be placed into each procedure?

(a) ExaminershipWhere it appears to the Court that: (a) a company is, or is likely to be, unable to pay its debts; (b) no resolution for the winding up of the company has been

passed and published in the Gazette; and(c) no order has been made for the winding up of the company,

it may, on application by a petition, appoint an examiner to the company for the purpose of examining the state of the company’s affairs and performing such duties in relation to the company as may be imposed under the applicable legislation.

(b) Arrangements and reorganisationsIn the cases of arrangements and reorganisations, the company must be facing short-term financial difficulties but, subject to resolution of those difficulties, is considered to be viable. The procedure is also used in Cyprus due to the favourable tax treatment of corporate reorganisations.The procedure can be used to achieve a compromise or arrangement between a company and its creditors, or between a company and its members or any class of them.(c) ReceivershipIn the case where a defined event of default has taken place, a secured creditor can appoint a receiver under the terms of a relevant charge against the company.The appointment of a receiver does not give any protection against recovery actions by creditors. However, if the appointment is under a crystallised floating charge, the creditor is unable to enforce any judgment it may obtain. The terms of individual agreements will determine whether counterparties can terminate their contracts with the debtor or rescind any licences.(d) Winding upAn application to the Court for the winding up of the company is made by petition submitted by any one of the following persons: (a) the company;(b) a creditor or creditors, including any contingent or prospective

creditors;(c) a contributor or contributors; (d) a liquidator of another Member State, as determined by

paragraph (b) of section 2 of Council Regulation (EC) No 1346/2000 of 29 May on insolvency proceedings, who is appointed within the framework of judicial proceedings by virtue of section 3 of this Regulation, as it may be amended or replaced from time to time;

(e) a temporary liquidator appointed by the court of another Member State according to section 38 of Council Regulation (EC) No 1346/2000 of 29 May on insolvency proceedings;




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Following the 2015 legislative amendment, creditors’ or contributories’ meetings can appoint a liquidator.Where a company is wound up by the creditors and separate meetings of the creditors and the contributories of the company are summoned for the purpose of choosing a person to be the liquidator of the company, a liquidator can be nominated in such meetings, as the case may be. Where more than one person is nominated, any contributor or creditor may, within seven (7) days from the date on which a person was nominated, apply to the Court for an order: (a) appointing the person nominated by the contributories as

liquidator, in place or together with the person nominated by the creditors; or

(b) appointing another person as liquidator, except the person nominated by the creditors.

A resolution is passed in a meeting of the creditors or contributories when the majority in value, of the present and voting persons, personally or by proxy, have voted in favour of the resolution.

2.6 Are “pre-packaged” sales possible?

Where the court is satisfied that disposing any of the company’s secured assets could lead to more favourable liquidation of its assets. In such disposal, the secured creditor maintains the same priority over the net proceeds accruing from such disposal.

3 Creditors

3.1 Are unsecured creditors free to enforce their rights in each procedure?

Unsecured creditors can bring an action for recovery of debt in the district court of the debtor’s place of business or residence. Recovery actions can be protracted if the debtor files a defence.Unsecured creditors cannot bring an action while a company is in examinership.Where the company is being wound up by the court, a person claiming to be a creditor of the company and wishing to retrieve his debt in total or partially, must serve written proof of debt to the liquidator within thirty-five (35) days from the date of publication of the winding up order in the Gazette. Following a duly justified application of a creditor, the time period of thirty-five (35) days may be extended by the official receiver or the liquidator. The proof of debt sets out whether the creditor is or is not a secured creditor. Proof of debt includes or refers to a statement of account evidencing the details of the debt and specifies the proof of debt of payments, if any, by which the debt may be supported and, where applicable, the names of all the guarantors having a liability in relation to the debt of the company and the extent of the liability deriving from the guarantee according to the agreement of guarantee, at the date of serving the proof of debt. The official receiver or liquidator may at any time require the presentation of expenditure documents.

3.2 Can secured creditors enforce their security in each procedure?

Generally speaking, a creditor having obtained a judgment can enforce such judgment through the following execution measures:■ A writ of execution for the sale of movables.■ Garnishee proceedings requiring a third party who owes

money to the debtor to pay the money directly to the creditor instead.

(e) such further or other information as may be prescribed or as the official receiver may require.

In relation to a directors’ declaration in voluntary winding up, such declaration shall have no effect for the purposes of this Law unless: (a) it is made within the five weeks immediately preceding the date of the passing of the resolution for winding up the company and is delivered to the registrar of companies for registration before that date; and (b) it incorporates a statement of the company's assets and liabilities as at the latest practicable date before the making of the declaration.

2.5 What notifications, meetings and publications are required after the company has been placed into each procedure?

(a) ExaminershipDuring the examinership, the company comes under the protection of the court, for a period of four months, while the examiner assesses proposals relating to the company’s debts. The court, upon assessing such proposals, can ratify them into being legally binding over all parties concerned. (b) Arrangements and reorganisationsNotices of the meeting or meetings to consider the proposals must be sent to members, creditors or both, as the court directs, accompanied by a statement explaining the effects of the proposals. This statement must identify any interests of the directors and the effect of the proposals on those interests. At such meetings, creditors decide by simple majority of value or votes.To be binding, the compromise or arrangement must be passed by a majority in number representing 75% in value of the creditors or members present and voting at the meeting of creditors or members. The approval of the court is required for the convening of any meetings and to sanction the resolutions passed at those meetings.(c) ReceivershipWithin seven days of appointing a receiver, the appointor must notify the Registrar of Companies (Cap. 113, section 97). If the appointment is under a floating charge covering substantially all the assets of the company, the receiver must immediately notify the company, which must within 14 days provide the receiver with a statement of affairs, including a statement of all assets and liabilities (Cap. 113, section 340). (d) Winding upIf a winding up order is made by the Court, the Official Receiver will be appointed as liquidator (permanently and not temporarily as had previously been the case). The Official Receiver may apply to the court for another person to conduct the liquidation under his direction. The liquidator will convene meetings of creditors and contributories to ascertain their wishes on this issue.Where a petition for the winding up has been presented by the company, the company submits alongside the petition a statement of its affairs as they stood at the time of the presentation of the petition. The official receiver shall by virtue of his office become the liquidator and shall continue to act as such unless, following an application to the Court by the official receiver, another person is appointed liquidator or another person becomes liquidator pursuant to the provisions of Cap. 113 and is capable of acting as such. At any time during which the official receiver is the liquidator of the company he may, within 60 days from the service of the order of the Court appointing him liquidator, summon and preside over separate meetings of the creditors and contributories of the company for the purpose of choosing a person who shall be liquidator in the place of the official receiver.



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taken into account for the purpose of the final adjustment of the rights of the contributories among themselves.

4 Continuing the Business

4.1 Who controls the company in each procedure? In particular, please describe briefly the effect of the procedures on directors and shareholders.

(a) ExaminershipThe examiner controls the procedure, while the company comes under the protection of the court for the period during which the examinership is in place (four months).(b) Arrangements and reconstructionsThe directors continue to control the company, subject to the oversight of the court.(c) ReceivershipThe receiver controls the assets over which he has been appointed, for as long as his appointment lasts. The extent of his powers and the degree of supervision over him are set out in the document appointing him. If the appointment is under a floating charge over substantially the whole of the assets and undertaking, the directors’ powers of management of the business are suspended. However, they remain responsible for the company.(d) Winding upOn the making of a winding-up order the company can no longer trade, except with the approval of the court (or the committee of creditors, if there is one) for the beneficial realisation of assets. No action can be proceeded with, or commenced against, the company except by leave of the court and subject to such terms as the court may impose (section 220, Cap. 113). Any disposition of the company’s property that takes place after the commencement of winding-up and any transfer of shares or alteration in the status of the members of the company after the commencement of winding-up will be void unless the court orders otherwise.All the company’s assets vest in the Official Receiver, who is responsible for realising them and distributing the proceeds among the creditors. The directors are required to provide the Official Receiver with a statement of affairs detailing all the company’s assets and liabilities, including prospective and contingent assets and liabilities. The Official Receiver (or liquidator appointed to act in his place) will realise the assets, determine the amount of individual claims and distribute any funds in accordance with the priorities set out in section 2. The liquidator has extensive powers to realise the assets and determine claims, including the right to:■ Bring and defend actions on the company’s behalf.■ Continue to trade for the beneficial realisation of assets.■ Borrow on the security of the company’s assets.■ Do anything else that may be necessary for the purposes of

the winding-up.The Official Receiver is a State official and in Cyprus the post has always been held by the Registrar of Companies. Private individuals can also be appointed liquidators, provided they are licensed insolvency practitioners.

4.2 How does the company finance these procedures?

Arrangements and reconstructions costs are financed from the company’s normal cash flows. In the context of receivership, costs are paid out of the assets subject to the charge. Temporary funding to carry on the business will

■ Registration of a charging order over the debtor’s immovable property or chattels.

■ A writ of delivery of goods, ordering goods to be delivered to the creditor.

■ A writ of possession of land, ordering the land to be delivered to the creditor.

■ A writ of sequestration, ordering the seizure or attachment of property.

If the debtor owns certain assets and there is a risk that the debtor will dispose of them, the creditor may obtain an injunction to freeze them. Apart from this, pre-judgment attachments are not available.The appointment of a receiver does not give any protection against recovery actions by creditors. However, if the appointment is under a crystallised floating charge, the creditor is unable to enforce any judgment it may obtain. The terms of individual agreements will determine whether counterparties can terminate their contracts with the debtor or rescind any licences.No legal action or proceeding can be continued or commenced against a company in respect of which a winding-up order has been made, or a provisional liquidator has been appointed, except with the leave of the court and subject to such terms as the court may impose. In voluntary liquidation, a creditor who has issued execution against a company’s property or has attached any debt due to the company after commencement of the winding-up cannot retain the benefit of the execution or attachment against the liquidator in the winding-up.Also in winding-up, a secured creditor shall, within ten (10) days from the date of publication of the winding up order in the Official Gazette of the Republic, submit to the official receiver or the liquidator and – where applicable – to a guarantor, a preliminary evaluation of the value of the property subject to security. At the latest within ten (10) days from the day of submission of the said preliminary evaluation by the creditor the official receiver or liquidator, and, where applicable, the guarantor: (a) agrees between themselves and the creditor in relation to the

value of the property subject to security and in such case the said evaluation is binding upon all;

(b) appoints an independent evaluator; or (c) applies to the competent authority (the Insolvency Service)

for the appointment of an independent evaluator. The statutory changes brought about in 2015 provide for the administration of secured assets of the company, by leave of the court, where the court is satisfied that the disposal of any secured assets may lead to a preferable liquidation of its assets compared to alternative liquidation. In this manner, unsecured creditors could receive proceeds from any outstanding balance remaining following the disposal of the secured assets. The secured creditor maintains the same priority it had prior to the disposal of such secured assets, over the net proceeds resulting from the disposal of such assets.

3.3 Can creditors set off sums owed by them to the company against amounts owed by the company to them in each procedure?

Subject to certain restrictions discussed below, set-off could be made available to creditors. The court may, at any time after issuing a winding-up order, order any contributory to pay any money due from him to the company. In making such an order the court may make, to any director or manager whose liability is unlimited, an allowance by way of set off of any monies due from the company on any independent dealing or contract with the company, but not any money due to him or her as a member of the company in respect of any dividend or profit. Moreover, pursuant to the provisions of section 204(g) of Cap. 113, a sum due to any member of a company in his or her capacity as a member by way of dividends, profits or otherwise is not deemed to be a debt of the company, but it may be




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Those forms of proof will be examined by the liquidator, who must decide if he accepts, rejects or requires more information and details about certain claims. In case he rejects a claim he must give in writing the reasons why he rejected the claim.Only proved claims may be paid by the liquidator. An unsatisfied creditor may apply to the Court if the liquidator did not accept the proof of his debt.

5.2 What is the ranking of claims in each procedure? In particular, do any specific types of claim have preferential status?

During a voluntary arrangement or a reorganisation plan, the creditors are paid according to the terms and conditions they have agreed and approved. It must be noted though that the rights of the secured and preferential creditors remain intact.The order of distribution of assets in a winding-up is as follows:■ First, the costs of the winding-up.■ Second, the preferential debts. Preferential claims are defined

in section 300 of Cap. 113 and comprise:(a) all government and local taxes and duties due at the date

of liquidation and having become due and payable within 12 months before that date and, in the case of assessed taxes, not exceeding one year’s assessment; and

(b) all sums due to employees, including wages, up to one year’s accrued holiday pay, deductions from wages (such as provident fund contributions) and compensation for injury.

Claims of employees who are shareholders or directors may not rank as preferential depending on the nature of the shareholding or directorship. A person who has advanced funds for the purpose of paying employees will have a subrogated preferential claim to the extent that the employees’ direct preferential claims have been diminished because of the advances.

■ Third, any amount secured by a floating charge.■ Fourth, the unsecured ordinary creditors.■ Fifth, any deferred debts such as sums due to members in

respect of dividends declared but not paid.■ Lastly, any share capital of the company. Where there are

different classes of share capital, such as preference shares, their respective rankings will be determined by the terms on which they were issued.

Within each category of claim, creditors rank equally and abate in equal proportions if there are insufficient funds to pay them in full.

5.3 Are tax liabilities incurred during each procedure?

No taxation liabilities arise for companies under any of the procedures, unless where profits are deemed to arise. Regarding reorganisations in particular, the Income Tax Law 118(I)/2002, as amended, provides (sections 26 to 30) that reorganisations are tax exempt. This one of the main reasons Cyprus is extensively used as a jurisdiction for corporate reorganisations and restructuring.

6 Ending the Formal Procedure

6.1 What happens at the end of each procedure?

Where there is a successful implementation of the voluntary arrangement or the reorganisation plan, the board of directors and shareholders continue to enjoy their rights under the new status of

generally be available from the appointor. The terms of the financing are a matter for agreement between the receiver and the appointor. Repayment of this finance has no special priority under the law. In winding-up proceedings, here a person other than the official receiver is appointed liquidator, that person shall receive such salary or remuneration by way of percentage calculated on the basis of the value of the assets secured or distributed or one way or the other or a combination or otherwise as the Court may direct or as the creditors may determine depending on the time spent by the liquidator in relation to matters relating to the winding up, and, if more such persons than one are appointed liquidators, their remuneration shall be distributed among them in such proportions as the Court directs or the creditors decide.

4.3 What is the effect of each procedure on employees?

There is no direct impact on employees in case a reorganisation plan is applied. It may be a term of the arrangement that their status will remain unaffected or altered according to the terms of the agreed scheme.A receiver will review and adjust resource requirements as appropriate, but the receivership procedure itself has no automatic effects on contracts.In a winding-up, employees are no longer required, and the liquidator will terminate their employment. Their entitlements to arrears of pay, holiday pay, notice pay, compensation for redundancy and the like will rank as claims in the liquidation and some of these will also be underwritten by the government under employment legislation.

4.4 What effect does the commencement of any procedure have on contracts with the company and can the company terminate contracts during each procedure?

In an arrangement or reorganisation there will be no impact on the contracts already entered into, unless there is a different arrangement according to the terms of the agreed scheme of arrangement.The contracts entered into by a company in administration or liquidation will not be terminated by entering into the procedure itself. It is very common, however, for a contract to be terminated by default upon the commencement of administration or liquidation. The liquidator has the right (an administrator does not) to cancel unilaterally an “onerous” contract in order to fulfil his duties and proceed with the liquidation of the company. If from that action losses of the other party occur, then the damaged party may claim its losses during the winding up.

5 Claims

5.1 Broadly, how do creditors claim amounts owed to them in each procedure?

In arrangements and reorganisations, a claims mechanism will be made available under the relevant proposal made within the context of the reorganisation.In receivership, the receiver’s principal objective is repaying the amount owed to the chargeholder and other claims (apart from preferential claims if his appointment is under a floating charge) will not be relevant. Preferential claims will be individually agreed. Where a liquidator has been appointed, the creditors must send to the company a formal claim in order to prove their debts. The liquidator is obliged to send forms of proof to every known creditor and it must be submitted back to him with all their proofs for any kind of claim they have – present or future.



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decisive role if they are being asked to accept anything less than full, immediate settlement of their debts. Otherwise the members will have the decisive role.An approved compromise or arrangement is binding on all creditors or members, the company itself and, where the company is wound-up, on the liquidator and contributories.

7.2 If such a procedure is available, is a debt for equity swap possible and how are existing shareholders dealt with?

The procedure for arrangements and reconstructions sets out a very flexible framework under which any type or reorganisation is possible. It is possible to convert debt into equity on any terms that are agreed between the various stakeholders.

7.3 Is a moratorium available as part of the restructuring process?

During examinership, a moratorium is in place for the entire four-month period during which the company is placed under the protection of the court.There is no moratorium in the context of reorganisations and arrangements.

7.4 Can dissenting creditors be crammed down?

An arrangement or compromise approved by a majority representing 75% in value of the creditors or members present and voting at a duly convened meeting of creditors or members is binding on all creditors or members, as the case may be. Depending on the terms of the proposal approved by the court, separate meetings of different classes of creditor or member may be convened, in which case the “cram-down” extends only to the class of member or creditor concerned. The “cram-down” is finally binding when the outcome of the meetings is reported to, and approved by, the court.

7.5 Is consent needed from other stakeholders for a restructuring?

In arrangements and reorganisations, rights cannot be varied without the consent of the affected parties (or, at least, without the consent of the requisite majority of the group to which they belong).

8 International

8.1 What would be the approach in Cyprus to recognising a procedure started in another jurisdiction?

If there are concurrent proceedings in Cyprus and abroad against a foreign company, the Cyprus courts consider the local proceedings as subsidiary to the foreign proceedings. Generally, Cyprus courts recognise judgments and orders made by courts in other jurisdictions if the Cyprus courts consider that those judgments or orders have been properly made under the foreign law and that the foreign courts had the necessary jurisdiction. Under Regulation (EC) 1346/2000 on insolvency proceedings (Insolvency Regulation) the Cyprus court may not question whether the court hearing the main proceedings had jurisdiction.

the company. There is a great possibility, however, that the voluntary arrangement or the reorganisation plan may fail and the company will have to enter into other procedures such as liquidation.A receiver may end the receivership if it is of the opinion that his task has been achieved and in such case he will return control to the company directors. He may also wind-up the company in order to distribute the company’s assets or to dissolve it if there are no assets for distribution.A compulsory winding up is completed within a time period of eighteen (18) months from its commencement. Where the official receiver or the liquidator deems that it is not possible to complete the compulsory winding up of a company within 18 months, he applies to the Court for an extension of such period.

7 Restructuring

7.1 Is a formal statutory procedure available to achieve a restructuring of the company’s debts in Cyprus and, if so, to what extent is it supervised by the court?

(a) ExaminershipThe main aspects of the examinership process introduced in 2015 are as follows:(i) examinership can span a total of four (4) months;(ii) within the four-month period of examinership, an appointed

insolvency advisor shall be appointed as examiner upon an application lodged by the company itself, any creditor or shareholders holding more than 10% in the company’s shares;

(iii) the examiner can propose debt settlement/restructuring plans to creditors and shareholders of the company concerned, which will require judicial ratification where the court is satisfied that there is a reasonable viability prospect for the company on the basis of an independent expert report;

(iv) during the four-month period of examinership, the insolvency advisor acting as examiner shall have powers, subject to leave of the court, to manage or dispose of secured assets of the company and perform functions of the company’s directors; and

(v) the court’s approval of any settlement plans/restructuring proposals submitted by the examiner takes into account the prospects of continuity of the business, employment positions and assesses whether the creditors of the company would be in a less favourable position if the company underwent winding-up.

(b) Arrangements and reorganisationsAs mentioned above, company reorganisations are used for the financial restructuring of a company which is viable but subject to short-term liquidity problems. Sections 198 to 201 of Cap. 113 set out the provisions governing company arrangements and reconstructions. The procedure is available to all Cyprus-registered companies (including companies already in liquidation) apart from banks and insurance companies, which have separate resolution regimes. They are also used to effect a wide range of mergers and reorganisations of companies, owing to the favourable tax treatment of reorganisations.The procedure can be used to achieve a compromise or arrangement between a company and its creditors, or between a company and its members or any class of them. The creditors will have the




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of judicial proceedings by virtue of section 3 of this Regulation, as it may be amended or replaced from time to time. Moreover, a winding up petition can be lodged by a temporary liquidator appointed by the court of another Member State according to section 38 of Council Regulation (EC) No 1346/2000 of 29 May on insolvency proceedings.

The 2015 legislative amendment has incorporated the recognition of liquidators from other EU Member States into the Cypriot legal order. Specifically, an application to the Court for the winding up of the company can be made by petition submitted by a liquidator of another EU Member State, as determined by paragraph (b) of section 2 of Council Regulation (EC) No 1346/2000 of 29 May on insolvency proceedings, who is appointed within the framework


Anastasios A. AntoniouAnastasios Antoniou LLC3, Gr. Afxentiou 102 4003 LimassolCyprus

Tel: +357 257 500 03Fax: +357 251 045 74Email: [email protected]: www.antoniou.com.cy

Michalis MichaelidesAnastasios Antoniou LLC3, Gr. Afxentiou, 1024003 LimassolCyprus

Tel: +357 257 500 03Fax: +357 251 045 74Email: [email protected]: www.antoniou.com.cy

Anastasios A. Antoniou practises the law in Cyprus as an Advocate of the Supreme Court and is the founder of Anastasios Antoniou LLC.

Anastasios is ranked as a leading Cyprus lawyer by The Legal 500, Who’s Who Legal, Best Lawyers International and IFLR1000 in his practice areas of expertise. He has also received the ILO/Lexology Client Choice Award for competition law.

He is a member of the European Competition Lawyers Forum, the British Institute of International and Comparative Law, the Cyprus Bar Association, the International Bar Association and the Association of International Petroleum Negotiators. He has authored a plethora of articles in journals, books and professional guides on corporate and commercial law and litigation.

Anastasios is fluent in English, Spanish and Greek.

Ranked as a top-tier Cyprus law firm by The Legal 500 and acclaimed by Best Lawyers, IFLR1000 and Who’s Who Legal, Anastasios Antoniou LLC is a boutique practice advising on Merger Control, Competition law, Corporate law, Shipping & Maritime law and Intellectual Property, while our Litigation & Dispute Resolution team acts in corporate, commercial, investment and maritime litigation and arbitration.

In corporate law, particularly recovery and insolvency, Anastasios Antoniou LLC provides the highest quality of legal services, covering all aspects from drafting corporate legal documents and rendering legal advice on corporate law issues, to acting in judicial proceedings relating to the insolvency framework and carrying out all required filings with the competent authorities in relation to examinerships, reorganisations and restructurings.

Michalis Michaelides heads the Corporate Law Practice Group. Michalis is a UK-educated lawyer (University of Leicester) at postgraduate level and is highly versed in all aspects of Cyprus corporate law, insolvency and investment law.

Michalis has authored a number of articles and book chapters on corporate insolvency and recovery under Cyprus law and has extensive expertise in assisting with the establishment, reorganisation, compliance and contractual affairs of Cyprus companies.

Michalis is fluent in Greek, English and French and practises the law as a qualified Advocate from our Firm’s offices in Limassol.

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