Cyprus A colonial inheritance
Elias Neocleous and Maria Kyriacou of Andreas Neocleous & Co explain why Cyprus’s corporate insolvency regime may, despite its age, offer an attractive legal framework for restructuring
economic crisis of 2008, but the Cypriot banks’ significant exposure to the Greek econo- my and an imbalance in public finances have brought about the first recession and the first significant insolvencies that most people can remember. The number of corporate liquida- tions in the first half of the last decade averaged 324 per year. In the second half of the decade it rose to 554, and in 2011 it was 1163. For the first 11 months of 2012 the figure was 1137, which would indicate a continued increase. These figures include liquidations of solvent companies, and with more than 250,000 companies on the register they are not substantial, but nevertheless the trend is clear. Having been something of a legal backwa- ter for many years, insolvency is becoming an increasingly important topic. In the follow- ing paragraphs we give a brief overview of Cyprus’s corporate insolvency regime and some tentative conclusions on its fitness for purpose. Cypriot insolvency law would be familiar territory for most British practitioners, or at
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least for those of a certain age. The Companies Law is a legacy of colonial rule, and close- ly follows the England and Wales Companies Act of 1948. Although it has been extensive- ly added to in order to bring it into line with EU legislation, large sections, including those relating to receivership and liquidation, remain unchanged since before independence. The Companies Law provides four main procedures for dealing with insolvency, rang-
ing from arrangements and compromises for viable companies with temporary funding problems, to winding up by the court for those whose problems are terminal. In roughly increasing order of rigour and finality they are: • arrangements under sections 198 to 200 of the Companies Law; • the appointment of a receiver and manager; • creditors’ voluntary liquidation; • winding up by the court, often referred to as compulsory liquidation. The Companies Law also includes a members’ voluntary liquidation procedure for the winding up of solvent companies.
Sections 198 to 200 of the Companies Law The procedure under sections 198 to 200 of the Companies Law is appropriate for the financial restructuring of a company which is viable but subject to short-term liquidity problems. It can pro- vide a cram-down and also be used to accomplish 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 compa- ny and its creditors, or between a company and its members, or any class of them. Once
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legal backwater for many years, insolvency is becoming an increasingly important topic
“ ” IFLR|RESTRUCTURING & INSOLVENCY 019 Something of a
fter gaining independence from the UK in 1960, Cyprus enjoyed almost 50 years of uninterrupted prosperity. As a result, its insolvency laws were rarely used, and received little attention. For a time the island appeared unaffected by the global
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