1. Issues Arising When a Company is in Financial Difficulties
1.1 How does a creditor take security over assets in Cyprus?
Prior to independence, Cyprus was a British colony and much of its legal system derives from English law. The Companies Law, Cap. 113, closely resembles the UK Companies Act 1948. The Companies Law has been added to and updated over the years but most of its provisions in the fields of security and insolvency remain broadly as they were at independence. The most common forms of security are:
- mortgage (legal or equitable) over immovable property;
- fixed charge;
- floating charge; and
Mortgages, charges and other rights over immovable property should be registered with the Department of Lands and Surveys (Immovable Property (Transfer and Mortgage) Law, No. 9 of 1965). While registration is not compulsory, unregistered charges cannot be enforced.
A company creating a charge over any of its property must submit particulars of the charge together with the charge document to the Registrar of Companies within 21 days (Companies Law, section 91). If a company acquires property subject to a charge, it must send the same particulars and a certified copy of the charge within 21 days of acquiring the property (Companies Law, section 92). The charges will be accepted for registration only if they are properly stamped. Breach of section 91 or section 92 makes the company and every officer liable to a default fine of €425. If the company neglects to register the charge, any other person interested in the charge may submit details to the Registrar of Companies for registration and recover the cost from the company (Companies Law, section 91). The court has the power to extend the time for registration or to register a charge out of time if it considers it appropriate to do so (Companies Law, section 96).
A floating charge is a security interest, generally over all the company's assets, which "floats" until a default occurs or until the company goes into insolvent liquidation, at which time the charge crystallises. The holder may realise assets piecemeal or, if the floating charge covers substantially all of the assets and undertaking of the company, the holder may appoint a receiver and manager to take control of the business with a view to discharging the debt out of income or selling off the business or part of it as a going concern.
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