CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
Where the security is financial collateral, no formalities exist under Section 90 of the Companies Law and the requirements contained in Section 138 of the Contract Law do not apply. The formalities are outlined in more detail in 5.5 Other Restrictions . 5.2 Floating Charges and/or Similar Security Interests Generally, no restrictions exist on the type of assets over which a security can be fixed unless it is a future asset, in which case any type of security can be granted (including a floating charge), besides a legal mortgage and a pledge. Likewise, any security can be fixed over interchangeable assets, besides a legal mortgage. 5.3 Downstream, Upstream and Cross- Stream Guarantees It is possible for corporate entities to provide down- stream, upstream and cross-stream guarantees as long as the guarantee is in accordance with Section 53 of the Companies Law (financial assistance) and as long as they have the necessary corporate power to do so. Section 53 provides whitewash provisions regarding unlawful financial assistance of private com- panies. Specifically, the provision of direct or indirect financial assistance by a private company for acquisi- tion of its own shares or of the shares of its holding company is not unlawful in cases where: • such private company is not a subsidiary of any public company; and • the relevant transaction is approved by the general meeting of the company by a resolution passed by a majority of 90% of all the issued shares of the company. It is important to highlight that the general prohibition on the provision of financial assistance by a public company for acquisition of its own shares still exists. Further, it is noted that the whitewash provisions do not affect the obligation to comply with any other legal obligations, such as when acting as a guarantor, the directors of a company owe a duty to their company to act in good faith for the benefit of the company. The
company’s benefit from acting as a guarantor should be established. 5.4 Restrictions on the Target See 5.3 Downstream, Upstream and Cross-Stream Guarantees . 5.5 Other Restrictions Security Charges (fixed or floating) This is a common form of security taken over mov- able property. If the chargor is a Cyprus legal entity, then the charge must be registered with the Registrar of Companies (RoC) within the given statutory time- frame, on the prescribed ΗΕ24 form and accompanied by the relevant fee. If a charge is not registered appro- priately, it will be invalid against a future liquidator of the legal entity chargor. Liens Liens can arise under common law or equitable prin- ciples with no formalities being observed, although a contract may explicitly provide for a lien. Mortgages Mortgages are a common form of security taken over property such as real estate, vessels and ships. The lender obtains a right in rem over the property. If a mortgage is not properly registered with the RoC within the time limit set out by the Companies Law, then the mortgage will be void against a liquidator or creditor of the mortgagor company. Pledges A pledge of shares of a Cypriot company is not reg- istrable for perfection purposes. However, if a pledge has been taken over a foreign company’s shares by a Cypriot-registered company, then the pledge has to be registered as a charge with the RoC to be per- fected and valid against a liquidator of the pledgor. In addition, a pledge can be created over any kind of movable property. The formalities for a pledge of shares of a Cypriot company, in order to be valid and enforceable accord- ing to Section 138 of the Contract Law are:
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