CYPRUS Law and Practice Contributed by: Ioanna Solomou, Stephanos Ayiomamitis, Andria Kouloumi and Lefteris Eleftheriou, Michael Kyprianou & Co LLC
3.9 Other Claims/Enforcement Against Directors/Officers Beyond specific statutory breaches, directors in Cyprus may face claims and enforcement actions on several additional bases arising from corporate gov - ernance failures. Most notably, liability may arise from breaches of fiduciary duties – such as the duty to act in good faith, avoid conflicts of interest, and exercise powers for proper purposes – as well as the duty of care, skill and diligence under common law principles. Directors may also be exposed to claims for negli - gence or breach of trust, particularly in insolvency scenarios. Shareholders may bring derivative actions on behalf of the company in cases of wrongdoing, while creditors may have standing in circumstances where the company is insolvent or nearing insolven - cy. Criminal liability may also arise in cases involving fraud, false statements or other statutory offences. Regarding limitation of liability, Cyprus law does not permit a company to exempt a director from liability for negligence, default, breach of duty or breach of trust in relation to the company. Any such provision in the company’s constitutional documents would gen - erally be void. However, companies may, subject to certain conditions, indemnify directors against liabili - ties incurred in the proper performance of their duties, except in cases involving fraud, wilful default or bad faith. Additionally, courts in Cyprus have discretion to grant relief to directors who have acted honestly and reasonably and who, having regard to all the cir - cumstances, ought fairly to be excused. Overall, while liability cannot be fully excluded, it may be mitigat - ed through indemnities, insurance and judicial relief mechanisms. 3.10 Payments to Directors/Officers For private companies registered in Cyprus, there is generally no statutory requirement for shareholder approval of directors’ remuneration unless the com - pany’s articles of association provide otherwise. Remuneration is typically determined by the board. In contrast, for public listed companies, remuneration policies and, in certain cases, individual remunera - tion arrangements are subject to enhanced govern - ance requirements under EU shareholder rights rules as transposed into Cyprus law and the Cyprus Stock Exchange Governance Code (hereinafter the “Code”).
• standard of care – directors are expected to exer - cise reasonable care that an ordinary person would take on their own behalf; • standard of skill – directors are not required to demonstrate greater skill than can be reasonably expected based on their knowledge and experi - ence; and • attention to business – directors are not required to be continuously involved in the company’s affairs but must attend meetings when reasonably pos - sible. Duties of Loyalty and Good Faith Company directors owe fiduciary duties, which require them to act in the best interests of the company. These fiduciary obligations include the following. • Acting in good faith: directors must act in what they genuinely believe to be in the company’s best interests. • Use of power for proper purposes: directors must use their powers for the reasons they were given. • Avoidance of conflicts of interest: directors must avoid placing themselves in situations where their interests conflict with those of the company. For instance, if a director profits from using the compa - ny’s resources or opportunities, they may be liable to the company. 3.8 Breach of Directors’ Duties As a separate legal personality, a company in Cyprus can sue and take legal action against individuals or other legal entities, including its directors if they are found in breach of their duties. Breach of any of the statutory duties under the Com - panies Law can result in a criminal offence, with pen - alties ranging from the payment of a fine to imprison - ment. In addition, the directors are liable to personally compensate the company in respect of any loss that was a result of the breach of their duties. A company cannot grant directors a blanket exemp - tion in advance from liability to the company. Any clause in a contract or in the company’s articles of association that seeks to release a director from liabil - ity, or to indemnify them for breaches of their duty of care and skill, is considered void.
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