This article aims to provide a brief introduction to the Cyprus Law of restructuring and insolvency. During the last few years the global economy has experienced one of the most severe credit crises and economic slumps. It is at such times that the law of restructuring and insolvency becomes of significant importance and its statutory provisions are thoroughly used and at the same time scrutinized.
The main players in a corporate restructuring or insolvency case are the shareholders, the directors, the trade and financial creditors, the employees and government authorities. All the above share conflicting interests, which combined with the complexity of corporate restructuring and insolvency mechanisms and the economic crisis, make the attempts to handle a corporate restructuring process and bring it to a positive final result extremely difficult and complex.
During the process of a corporate restructuring or insolvency all parties involved seek to secure as much of their interest as possible. The shareholders struggle to avoid loss of their entire investment or even assuming further liability; the creditors line up and request full recovery of their credit; directors try to avoid being held responsible through their acts for any loss incurred; and the employees wish for the company to retain their employment or at least compensate in full as per statutory provisions.
The work required by a good corporate restructuring and insolvency practitioner is to find the way to bring all these conflicting interests in line and persuade all involved to follow his plan in an effort to restructure or liquidate a company in the most effective manner, thus securing as much of the interests of all involved as possible.
Procedures available under Cyprus Law for corporate restructuring and insolvency:
A) Under Cyprus Law the following procedures are available:
B) Winding up by the court (compulsory liquidation).
C) Members’ voluntary liquidation.
D) Creditors’ voluntary liquidation.
F) Company arrangements and reconstructions
Winding up by the court
Winding up by the court (compulsory liquidation) according to article 213 of the Companies Act Cap.113 (hereinafter referred to as ‘the Act’) may be initiated by petition presented either by the company or by any creditor or creditors (including any contingent or prospective creditor or winding up creditors), contributory or contributors, or by all or any of the above parties, together or separately, provided that specific provisions of Article 213(1) apply.
Such compulsory liquidation may be initiated under the Act when, a company takes a decision by a special resolution in a general meeting that the company should be wound up by the court; where a company has not started its operations within a year of its incorporation; where the company’s operations were postponed for a whole year; in the event of public company not filing its statutory report with the registrar of companies; when a company fails to call for a statutory meeting; when the company is incapable to pay off its debts; or when the court is of the opinion that it is just and equitable that the company be wound up.
The provisions of Article 212 of the act as with the definition of when a company is considered unable to pay off its debts are:
(i) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding £500.00 then due has served 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;
(ii) if execution or another process issued on a judgment decree or order of any court in favor of a creditor of the company is returned unsatisfied in whole or in part; or
(iii) If it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account that Article 214 of the Act provides for the powers of the court on hearing a petition.