Chapter 113(III) of the Companies Law is the main legal framework which regulates the voluntary liquidation procedure in Cyprus. There are two ways in which voluntary liquidation can be triggered: by members or creditors. This article provides an overview of the legal framework for voluntary liquidation by members and creditors, respectively.
In response to the COVID-19 crisis, the government introduced a series of humanitarian and financial measures, with the latter covering insolvency and restructuring matters. Although the measures could provide much-needed breathing space for companies, they might not solve problems that existed prior to the crisis.
Although it is a relatively unknown procedure, examinership may hold the key to the survival of businesses dealing with the financial consequences of the COVID-19 pandemic. Examinership can protect a business from any claims advanced against it in the short term and offer assistance in the form of an insolvency practitioner, who can devise a restructuring plan to safeguard the business's long-term survival.
The Limassol District Court recently ruled that minority shareholders may file an oppression of minority petition irrespective of whether the underlying company had a positive value for making distributions to shareholders in the event of a winding up. Although this first-instance judgment carries no precedential value, it nevertheless sets the record straight with regard to petitioners' locus standi to promote oppression of minority petitions in the event of a winding up.
As a result of the numerous cross-border structures involving Cyprus, the need to recognise foreign insolvency proceedings in Cyprus is becoming more common. While the framework for recognising cross-border insolvencies originating outside the European Union remains largely untested in Cyprus, case law shows the Cyprus courts' willingness to follow the principles of common law in line with current commercial realities.
The examinership framework – which was introduced to the Companies Law in 2015 – offers an effective mechanism for restructuring financially distressed companies. However, judging from relevant case law, it appears that an application for examinership must be pursued promptly when the financial distress arises and not when the need for a moratorium becomes apparent.
Schemes of arrangement have advantages over other insolvency procedures. For example, they offer a flexible, operational, creative and simple mechanism for restructuring debt and allow companies in financial distress to continue as going concerns. Recent statutory amendments have reduced the required statutory threshold for approving a scheme of arrangement and eliminated the requirement to secure a special majority of 75% in both value and the number of creditors present and voting.