CYPRUS Law and Practice Contributed by: Agathi Zervou and Maya Athanatou, George Z. Georgiou & Associates LLC
3.2 Claims Against Ultimate Beneficial Owners In exceptional circumstances, Cypriot courts may depart from the fundamental principle of separate legal personality of a company and pierce the cor - porate veil, so as to identify the company’s rights, liabilities and assets as those of its shareholders or controllers. The doctrine is particularly relevant in fraud cases, where individuals may seek to conceal their fraudu - lent acts or the proceeds of fraud behind corporate structures in an attempt to avoid personal liability or render themselves judgment-proof. 3.3 Shareholders’ Claims Against Fraudulent Directors Directors usually owe their fiduciary duties to the com - pany. Therefore, the general rule is that the company itself is the proper claimant in respect of wrongs done to it. In practice, this means that any action against a fraudulent director would ordinarily be brought by the company acting through its board. However, there are exceptions that allow sharehold - ers to bring claims on behalf of the company. This is mainly through a derivative action, which ena - bles a shareholder (typically a minority shareholder) to bring proceedings in the name of the company against directors or controlling shareholders who have engaged in wrongdoing, such as fraud, breach of fiduciary duty or misappropriation of assets. This is particularly significant where the alleged wrongdoers are themselves in control of the company and would prevent the company from pursuing the claim. Under CPR Rule 20.13, a derivative action cannot pro - ceed without the court’s permission, although prior permission is not required when seeking urgent inter - im relief. The court will grant leave only if the claimant establishes a prima facie case, a threshold higher than a merely arguable case. In assessing this, the court will consider whether in the absence of a defence, the claimant would be entitled to judgment. At this stage, where facts are disputed, the claimant’s evidence would generally prevail.
The claim must also fall within one of the exceptions to the rule in Foss v Harbottle , the most significant being where the wrongdoing amounts to fraud or that the directors either committed a deliberate or dishon - est breach of duty or obtained an improper benefit, whether financial or otherwise. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims A claimant must obtain the court’s leave to serve pro - ceedings out of the jurisdiction, where the defendant is located abroad and in a non-EU country. Such leave will be granted where one or more of the jurisdictional gateways under CPR Rule 6.8 are satisfied, such as where the claim relates to a civil wrong committed within the jurisdiction, damage has occurred or will occur in Cyprus or where the foreign defendant is considered a necessary or proper party to the proceedings. The application must be support - ed by an affidavit demonstrating a prima facie good cause of action, identifying the defendant’s residence and explaining why service outside the jurisdiction is justified. The court must also be satisfied that the claim is suitable to be served abroad. Furthermore, Cyprus courts are willing to exercise extraterritorial jurisdiction where there is a sufficient connecting link to Cyprus. This includes the ability to grant worldwide freezing orders. Nonetheless, these operate in personam and are enforceable only against parties within the court’s jurisdiction, despite that assets may be located abroad. 4.2 Service of Proceedings out of the Jurisdiction Please see 4.1 Joining Overseas Parties to Fraud Claims regarding obtaining permission to serve abroad. Once leave is granted, service must gener - ally be effected in accordance with applicable inter - national instruments, such as the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (Hague Service Convention) or any relevant bilateral agreement between Cyprus and the foreign
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