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02 February 2018
On January 10 2018 the annual creditors' meeting of former state-owned air carrier, Cyprus Airways took place. The liquidator presented a settlement plan which provided for the payment of €11 million to preferential creditors – namely, former employees and the state.
The settlement plan is considered by many as the last act of a series of bad management decisions and financial deficits stretching back many years. The company attempted to reduce its deficits, including through pay cuts, which were presented to employees as necessary for the company's survival. However, none of the attempts proved successful and soon after the pay cuts were implemented the company collapsed and went into liquidation.
The state stepped in immediately following the collapse and paid the majority of employees the money owed to them. Due to this payment, and by virtue of Section 300 of the Companies Law (Cap 113), the state became a preferential creditor, having made a payment that was owed to preferential creditors as a third party on behalf of the company.
As a result, the state was entitled to a share of the proceeds of the liquidation, along with the other preferential creditors. The other preferential creditors were primarily company employees, due to the fact that the payment made by the state did not cover all employee claims against the company, which included claims for unlawful salary and benefit reductions that were not covered by the aforementioned payment by the state.
During the creditors' meeting, some employees alleged that the liquidator:
This argument was based on the fact that:
In addition, the employees had taken pay cuts, which were presented as necessary for the company's survival. This survival was proved to be unfounded and, as a result, the payment by the state should have been considered as compensation for payment that the employees had lost due to mismanagement and the inability to save the company, instead of payment on its behalf.
In due course, the liquidator's settlement plan will be submitted to the court for ratification whereby any affected party will be able to raise its objections. It remains to be seen whether the disagreeing employees will raise any objections and how the court will deal with such an allegation.
For further information on this topic please contact Stelios Christofides at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (firstname.lastname@example.org). The George Z Georgiou & Associates website can be accessed at www.gzg.com.cy.
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