May 6, 2015
On 18 April the Cyprus parliament approved a new package of insolvency laws, aimed at streamlining and modernising the existing system and promoting a rescue culture. The new insolvency framework forms part of the economic adjustment programme agreed between the Cyprus government and international providers of financial support at the time of the 2013 banking crisis.
The new insolvency laws, which were extensively amended by the parliament in the course of its debate, have not been promulgated, and have not been published in final form. As a result there is considerable uncertainty concerning the detail. We set out below our understanding of the principal changes, but this should not be regarded as definitive.
Companies
The Companies Law has been amended to introduce a process called “examinership”, which is akin to the United Kingdom administration process. These provide for the appointment of an insolvency practitioner as “examiner”, whose role is to develop restructuring proposals and agree them with stakeholders during a four-month moratorium in which the company is protected from creditor action.
The Companies Law has also been amended to make the following changes regarding liquidation:
Individuals
The court has the power to order a 95-day moratorium on enforcement action by creditors for the debtor to agree an arrangement (known as a personal repayment plan) with them. If approved by a 75% majority of creditors in value and the court, the arrangement will be binding on the debtor and all creditors. Dissenting creditors will have a right to be heard before the court.
The court can impose a rescheduling if the following conditions are satisfied:
Individuals with minimal assets and income (assets below €1,000 and monthly income below €2,000) may apply to the court via the government insolvency service for an “order for debt relief” of up to €25,000.
Bankruptcy
Discharge is automatic after 3 years on the condition that all their property, both movable and immovable, is sold and the proceeds are distributed to the creditors. There are new criminal sanctions against fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets.
Guarantees
The liability of guarantors who are natural persons is limited to the shortfall of the value of the charged property below the secured liability, even if the guarantee provides for joint and several liability. Where the outstanding amount due to the creditor is less than the value of the mortgaged property, guarantors are discharged of their liabilities entirely. No proceedings can be commenced to enforce a guarantee within 2 years after the date of implementation of a personal repayment plan by the primary debtor.