Recent reforms on Cyprus corporate insolvency law

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The Lawyer of our office Georgia Zantira has completed successfully with distinction her LL.M. on corporate insolvency law at Lancaster University (UK). The thesis is entitled ‘A comparative evaluation of Cypriot corporate insolvency regimes in the light of the 2015 reforms’ and focuses on the 2015 amendments of the Cyprus Companies Law, Capital 113. These amendments were aimed at introducing a restructuring process for legal entities and promoting the rescue and restoration of business activities, as well as ensuring the protection of interests of all persons connected with insolvent companies and modernizing the liquidation procedures. At a general level, the thesis describes the Cypriot legal regime on corporate liquidation and then evaluates the new insolvency laws and examines their effectiveness through a comparison between the new Cypriot corporate liquidation laws and the corresponding UK laws.

The amendments came into force, as a new package of insolvency laws and were part of the Bailout Program for Cyprus which aimed at assisting the Republic of Cyprus to cope with the challenges of the financial crisis. The analysis and evaluation of the new insolvency laws shed light on the new provisions that have not been tested before the courts as yet and additionally, contribute in ascertaining whether the relevant amendments are efficient enough to serve the purpose for which they were introduced.

The exact extent and nature of the influence of the UK laws on the Cypriot corporate liquidation regime are disclosed along with the extent to which the practical experience with the law in the UK could serve as an interpretation tool assisting Cypriot courts in the application of the new Cyprus laws.

This thesis makes useful conclusions and suggestions for the improvement of the new corporate insolvency regime which are synopsized as follows:

• The major step of the modernization of Cyprus Insolvency Law was the introduction of the mechanism of Examinership which is very similar to the Irish Examinership and aims to the survival of the whole or any part of the stressed financially business. Yet the new mechanism has doubtful effectiveness due mainly to high costs and an out of court procedure is suggested.
• The compulsory liquidation has been reformed and modernized in favor of the protection of rights of guarantors and the protection of the company and creditors with the only weaknesses of some procedural matters. It is suggested in order to eliminate costs and time of the process the strengthening of the role and involvement of the Liquidator and at the same time the limitation of the involvement of the Court in the procedure.
• Significant amendments in Cyprus law which were made so as to strengthen the interests of the creditors, incorporate rules and principles of the UK law are the application of the cash-flow test, the balance sheet test and the pari passu principle along with the introduction of the new procedure of the early dissolution of the company, the extended powers of the Liquidator and the expanded new definition of “the inability to pay debts” that allowed to a larger number of parties to petition for winding up a company. An amendment relevant to the example of the UK public interest liquidation so as to ensure control of company activities that may harm the public interests it is also suggested.

A major step as to the modernization of the liquidation law has undeniably been taken, and it is now upon the discretion of the legislator to proceed with taking further measures for further improved regulation.  As far as the Courts are concerned, they should continue correctly using as a source of guidance the UK law given the great similarities with Cyprus law.

Georgia Zantira, Lawyer & Legal Advisor (LL.M.)