CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans Foreign lenders are not restricted from granting loans provided doing so is compliant with the laws of their own jurisdiction and this does not amount to doing business in Cyprus as a financial institution (ie, falls under the definition of offering banking services). The latter generally means retail banking, as opposed to the provision of one-off financing. 3.2 Restrictions on Foreign Lenders Receiving Security Borrowers are not restricted from granting security over any type of property, or guarantees to foreign lenders, provided there are no such restrictions in their constituent documents, the Companies Law or other provisions (such as AML regulations). 3.3 Restrictions and Controls on Foreign Currency Exchange There are no foreign currency exchange controls or restrictions as Cyprus is a euro area member state. Local borrowers are not restricted from borrowing in any foreign currency. Temporary restrictive measures were only imposed under the Enforcement of Restric- tive Measures on Transactions in case of Emergency Law (12 (I)/2013) for a limited period of time. Further, the Movement of Capital Law (115 (I)/2003) ensures that there are no restrictions on the movement of capital, including payments to and from residents of Cyprus and residents of the EU or third countries. See 3.4 Restrictions on the Borrower’s Use of Proceeds . 3.4 Restrictions on the Borrower’s Use of Proceeds Obviously, the proceeds from loans or debt securities must be used for legitimate purposes and subject to any restrictions imposed by the financing documents themselves. The effect of a borrower acting contrary to the approved purpose may, depending on the cir- cumstances, cause the contract to be void by reason of the objects being unlawful in part, or voidable at the option of the lender whose consent was caused by fraud or misrepresentation, under the Cyprus Contract Law, Chapter 149 (the “Contract Law”). In addition, the use of such proceeds must always comply with
the scope of activities of the borrower as these are stated in its memorandum of association, and must comply with general principles of contract law as well as specific restrictions/prohibitions that may exist under relevant applicable law. Further, Cyprus is a full member of the European Union and the United Nations, and applies, enforces and implements any international sanctions by a rel- evant decision or resolution adopted by the UN Secu- rity Council, and restrictive measures adopted by the Council of the EU via relevant decisions and regula- tions, within the framework of Common Foreign and Security Policy. Therefore, for example, the use of pro- ceeds to make or be part of any arrangement to pro- vide loans or credit to, or enter into any transactions or dealings with certain financial instruments with any legal person, entity or body on any such sanctions list (or any legal person, entity or body majority-owned by such sanctioned person, or acting on behalf of such Both the agent and trust concepts are recognised in Cyprus. Agency law is generally governed by several pieces of legislation, including Sections 142–198 of the Contract Law, which ultimately mirror English common law. Likewise, trusts are of common law application and the relevant domestic law is the Trustees Law, Chapter 193, as amended, and the International Trusts Law of 1992 (69 (I)/1992), as amended. The general idea of a trust is that it creates a fiduciary relationship where the trustee holds title to a property for the benefit of a third party. Thus, a trust can also be used to hold security over the possessions of debtors on behalf of creditors. An alternative concept, which falls between the two and is commonly used in financing/banking as well as commercial transactions, is that of the escrow agent, whereby the escrow agent assumes the role of both a trustee and an agent for both parties, in order to facilitate the conclusion of a transaction. 3.6 Loan Transfer Mechanisms There is no statutory mechanism for loan transfers. The loan documentation will usually provide that the sanctioned person) is prohibited. 3.5 Agent and Trust Concepts
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