CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
• it must be in writing, signed by the pledgor and the pledgee, and have at least two witnesses; • the pledgee must give notice of the pledge to the company whose shares are being pledged; • a memorandum of the pledge has to be added in the members’ register of the company whose shares are being pledged; and • the company must issue and deliver to the pledgee a certificate executed by the appropriate official of the company confirming the fact of the registration of the pledge in favour of the pledgee. No formalities are applicable when a security is finan- cial collateral, and the requirements contained in the Contract Law are not relevant. Guarantee Usually, a company offers guarantees as security for money owed on behalf of itself or a third party. In order for a company to grant a guarantee, it must have the adequate corporate power to do so and if it does not, the corporate guarantor must show that it will have a corporate benefit in giving the guarantee and that it serves its commercial and business interests. Fur- thermore, guarantees are usually formed by way of a written agreement and are bound to the contractual principles agreed between the parties themselves. 5.6 Release of Typical Forms of Security Security is usually released via an agreement between the relevant parties. If, however, security is registered as a charge under the Companies Law, then the RoC may release the security, either on whole or partial repayment of the secured debt. Filing the release with the RoC is a formality and it does not affect the validity of release. Releasing a legal mortgage over immovable prop- erty occurs when the mortgagor and the mortgagee present the district lands office with the necessary documentation, according to the Transfer and Mort- gages Law. In case a mortgagee does not release the mortgage, even after the discharge of secured obliga- tions, then a court order to cancel the mortgage can be obtained by the mortgagor. Procedures for the termination of a share pledge are specified in the pledge agreement and usually occur:
• when the secured obligations have been dis- charged in full; • via written agreement of the pledgee and the pledgor; • when the pledgee has served a termination notice on the pledgor; or • when there has been enforcement of the pledge by the pledgee. Following termination, the pledgee returns the pledge security documents to the pledgor and the secretary of the company whose shares were pledged is instruct- ed to delete the memorandum of pledge against the pledged shares in the register of members. 5.7 Rules Governing the Priority of Competing Security Interests Competing Security Interests The priority of competing security interests is gov- erned by the principles of common law. In general, priority is determined by the time of creation and the type of security interest created. For example, a fixed charge will have priority over a floating charge, and if the security interests are of the same kind (eg, two legal fixed charges) then the earlier security will take priority. The rules of priority are subject to limitations arising from insolvency laws. Subordination Various methods of contractual subordination are used in Cyprus to determine which lenders are the first eligible ones to receive interest and repayments, and which ones have first claim over loan collateral. Gen- erally, the “senior” lender has priority over any other “junior” lender, whose interest is thus “subordinated” and entitled to interest, repayment or the collateral only once the “senior” lender’s claim is satisfied in full. Contractual subordination of debt is common in lend- ing transactions and can be achieved by having a con- tractual agreement between the senior lender, junior lender and borrower. Structural subordination is another method used to arrange the priority of debts. This is done by concen- trating the senior debt in an active group company,
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