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24 July 2020
The COVID-19 pandemic created an unprecedented situation for the lives and livelihoods of people from every socioeconomic background. In response to the pandemic, Cyprus introduced a series of humanitarian and financial measures, with the latter covering insolvency and restructuring matters.
In June 2020 the Department of Insolvency and Related Matters Law 68(I)/2020 entered into force and established the Department of Insolvency, which is primarily responsible for:
Further, the Cyprus foreclosure procedure was inevitably revised due to COVID-19. In particular:
COVID-19 also affected Department of the Registrar of Companies deadlines for companies' submissions of annual returns. Companies now have until 28 January 2021 to comply with their filing requirements.
Due to COVID-19, court operations were suspended until 30 April 2020 subject to certain exceptions (ie, where a matter was extremely urgent or leave of the court was obtained). The courts reopened on 4 May 2020 and, following a Supreme Court order, judges' annual leave was shortened to replace the lost time from the delayed cases due to the crisis.
Cyprus is a member of the Pan-European Guarantee Fund, which was established to address the consequences of the pandemic across Europe. The financing package consists of:
Cyprus is expected to receive between €300 million to €400 million to benefit SMEs and mid-cap companies affected by the pandemic.
Another notable measure is an additional €400 million for the Cyprus Entrepreneurship Fund (CYPEF). Companies with up to 250 employees can apply for a loan not exceeding €1.5 million, which is repayable over a 12-year period with interest rates ranging from 2.55% to 4.5%. The CYPEF is managed by the European Investment Fund and its lending process has no governmental interference.
The insolvency and restructuring reforms introduced due to the COVID-19 crisis must not be undermined. A more relaxed approach to insolvency proceedings in the Cypriot corporate environment might be key going forward. There is still room for more flexible insolvency measures and Cyprus should take note of the approaches of other EU member states in this regard – most notably the United Kingdom.(1)
If conditions allow, it may be worth extending financing to large companies that find themselves in financial difficulties due to COVID-19, as this could have a domino effect on the Cyprus economy where large company developments attract more attention than SMEs. Arguably, companies should be entitled to financial support regardless of their size.
Although the insolvency and restructuring framework has not been a common concern for the Cypriot authorities and regulators during the COVID-19 crisis, the government has proposed many suggestions which promise an updated insolvency framework to reflected today's reality.
As an EU member state, Cyprus is able to receive further financial assistance from external sources. Such financing will provide companies with a safety net and a chance to grow during this period of relative instability.
Although the aforementioned measures and suggestions could provide much-needed breathing space for companies, they might not solve problems that existed prior to the COVID-19 crisis, including a lack of revenues and cash flows.
The pandemic is ongoing and many countries – including China – are facing a second wave of COVID-19, which could have a detrimental impact on the global economy. If the crisis deepens, this could heavily affect insolvency and restructuring proceedings alongside other economic sectors.
For further information on this topic please contact Alexis Erotocritou, Grigoris Sarlidis or Antreas Koualis at AG Erotocritou LLC by telephone (+357 25 370 101) or email (email@example.com, firstname.lastname@example.org or email@example.com). The AG Erotocritou LLC website can be accessed at www.erotocritou.com.
(1) The United Kingdom has introduced new restructuring tools including a moratorium for companies, giving breathing space to creditors that wish to enforce their debts while they seek to be rescued or restructure. The United Kingdom has also permitted companies in a moratorium to continue trading.
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