OCTOBER 2013

Legal Expert Board

35

Insolvency and Restructuring Cyprus

Looking further into the world of insolvency and restructuring, and the issues that can and often do arise, Lawyer Monthly speaks to Panayiota Georgiou from KPMG in Cyprus.

Please introduce yourself, your role and your firm.

I am a legal consultant specializing in corporate insolvency law, currently working with KPMG in the Restructuring and Corporate Recoveries Department. My areas of expertise include restructurings involving schemes of arrangements, reconstructions and mergers and acquisitions, as well as corporate liquidations, both compulsory and voluntary, and receiverships. I have substantial experience in cross border insolvencies and the conducting of restructuring and insolvency procedures of

international structures. As a

professional working in a big-four firm, I have gained such an understanding into business mechanics that, with the cooperation of the team, I manage large projects and provide workable and efficient solutions to the companies or their liquidators and receivers. KPMG’s Restructuring and Corporate Recoveries Department is currently one of the most well established practices in the field in Cyprus.

the restructuring and insolvency market has evolved radically over the last few years. How have you seen the market change recently in your jurisdiction?

The banking crisis in Cyprus, eventually leading to the resolution of one of the island’s major bank and the bail-in of the other by its depositors following its recapitalisation and major restructuring, revealed that the law had not been developed to such an extent as to enable the promotion of the banks’ corporate rescue. This effectively led to the enactment of the Resolution of Credit and other Institutions Law 2013, which is considered to be an important step for the practice area to evolve as with it came the realisation that corporations should not be left to die, but should be restructured. In terms of the market changes, the banking crisis means that banks are currently reluctant to lend. The effect of the bail-in has increased funding needs of business while the lending rates remain high. This has had an effect on development, consumer demand and business cash flows. As a result, many companies are looking into restructuring their affairs to deal with the current market conditions.

What do you think are the advantages and disadvantages of a restructuring programme as opposed to insolvency?

When a company has been identified to be in

distress, a restructuring programme to prevent it from failing is necessary, because the company’s unsecured trade creditors, its employees, and ultimately consumers and market competition can be benefitted in the long term. A restructuring exercise must be initiated at an early stage when the entity may still be able to use its own resources advantageously. This is so because restructuring often means renegotiation of debts, market differentiation and reduction of costs, which in most cases can be interpreted as writing off debts by creditors with agreements for cash injection at the same time in return for equity or securities, and employees’ dismissals. Despite such arrangements being challenging, commencing insolvency proceedings should be considered as a last resort solution. We often treat companies in distress as patients, who, as soon as their symptoms are diagnosed, custom-designed treatment is offered. This is the culture of corporate rescue which must be promoted in all cases, prior to resorting to liquidation, and the eventual death of a company.

What legal challenges and complexities arise when dealing with insolvency and restructuring in your jurisdiction? How can you assist clients in navigating/solving these challenges and complexities?

Cyprus insolvency law, as it currently stands, primarily regulates liquidation proceedings. Prior to a company commencing liquidation proceedings, we work with clients at a pre-liquidation stage to assess the prospects of a restructuring solution, or if the aim is indeed to have a company dissolved, to identify all such issues that may prove challenging in the process of doing so. Our law provides for mechanisms in relation to debt restructuring through schemes of arrangements, and reconstruction and merger solutions, where groups of companies are involved. Our team has good knowledge of all areas of law and business that may affect a liquidation or restructuring plan, with particular reference to employment and tax issues, property law issues, and banking business. We also undertake restructuring and liquidation cases with cross-border implications and have expert knowledge in international and European insolvency law instruments.

can you talk about any recent cases you have been involved in?

As part of my work, I am currently participating in a www.lawyer-monthly.com

major cross border liquidation of a Bank offering professional advice to the Cyprus Liquidators of the Branch on all aspects including cross border cooperation, creditors’ claims and collection and management of assets. In addition, I am also currently involved with the voluntary liquidation by creditors of an international product development company holding intellectual property rights, the management/receivership of a property development company, the restructuring of three large international investment structures, as well as in a number of voluntary liquidation of companies by their members.

How do you see this practice area progressing over the next 3-5 years?

Restructuring and insolvency law is a work in progress and with the current market conditions and global financial crises, it is expected that the need for expert professional advice shall rise in the forthcoming years. In view of globalisation, local laws should be diversified to allow for interstate cooperation or to adopt some form of the principle of modified universalism (given that the Cyprus legal system is common-law based) despite the English Supreme Court’s recent attempt to restrict its application. LM

Panayiota Georgiou LLB (Hons), LLM Legal assistant Manager Restructuring and corporate Recovery KPMG Limited 11, June 16th 1943 Str. 3022-Limassol, cyprus

tel: +357 25 869 000 Email: panayiota.georgiou@kpmg.com.cy