Examinership: Putting a Cyprus Company Beyond Its Creditors

Most people dealing with an insolvent Cyprus company think in terms of liquidation, because that is the procedure everybody has heard of. Part IVA of the Companies Law, Cap. 113, does something else entirely. It stops the creditors, appoints somebody to look at the business, and gives the company a fixed period to put a deal to the people it owes.

It is the only procedure in Cyprus law designed to keep a company alive rather than to distribute what is left of it, and both sides of a distressed situation need to understand it, because the first application decides who controls the next four months.

What the Court has to be satisfied of

Insolvency alone is not enough; the Court also has to see a reasonable prospect of survival. Section 202Α(1) allows the Court to appoint an examiner where the company is insolvent or there is a likelihood of insolvency, no winding-up resolution has been approved and published in the Gazette, and no winding-up order has been made. Those are gateway conditions, and the last two mean the timing of a liquidation petition matters a great deal.

Section 202Α(2) is the real test. The Court makes an order only if satisfied that there is a reasonable prospect of survival of the company, and of the whole or any part of its undertaking, as a going concern. A company with no business worth saving does not get an examiner; it gets a liquidator.

Insolvency itself is defined in section 202Α(3) on three alternative bases: inability to pay debts as they fall due, assets worth less than liabilities taking contingent and future liabilities into account, or the application of section 212.

Section 202Α(4) lets the Court look at behaviour as evidence, including whether the company has asked its creditors for significant extensions of time to pay, from which a likelihood of insolvency may reasonably be inferred.

Two kinds of company are outside the procedure altogether. Section 202Α(5) provides that no examiner may be appointed to a credit institution under the Business of Credit Institutions Law, or to an insurance undertaking.

Who can apply

Four different people can start it, and one of them is the company itself. Section 202Β(1) allows the application to be made by the company itself, or by a creditor, including a contingent or prospective creditor and including an employee of the company.

That an employee, or a creditor who is not yet owed anything, can start it is the feature most often missed. A creditor who expects a company to fail is not confined to petitioning to wind it up.

The protection, and what it stops

Under section 202Η(1) the company is under the protection of the Court from the date the application under section 202Α is filed, and the period runs for four months from that date, or until the application is withdrawn or dismissed, whichever happens first.

Protection begins on filing, not on appointment. A creditor who is about to move against a company can therefore find the door closed before anything has been decided.

Section 202Η(2) sets out what protection means, and the list is severe:

• no winding-up proceedings may be commenced, no winding-up resolution may be passed, and any resolution passed is of no effect
• no receiver may be appointed over any part of the property or undertaking, and a receiver appointed before the application may continue only subject to section 202Ι
• no garnishee, sequestration, attachment or execution may be levied against the property or effects of the company except with the consent of the examiner
• where a claim is secured by mortgage, charge, lien, pledge or other encumbrance over any part of the property, effects or income, no step may be taken to realise that security except as the section allows

Section 202Η(4) closes off a side route: complaints about how the company's business is being conducted while it is under protection are not a basis for relief under section 202.

Four months, twelve at the outside

The four months can be extended. Section 202Η(5) allows the Court, on the application of anyone within section 202Β(1) or the examiner, or of its own motion, to extend the initial period where it is satisfied that consideration of proposals is still under way and progress has been recorded in the negotiations, and that extending will not unfairly prejudice the rights or interests of any affected party.

There is a ceiling. Section 202Η(6) provides that the total period under protection may not exceed twelve months. Section 202Η(7) cuts it much shorter in one case: where the company's centre of main interests was moved from another Member State within the three months before the application, the total may not exceed four months.

The examiner works to a separate clock. Under section 202ΙΘ(2) the examiner convenes and chairs such meetings of members and creditors as are appropriate, on at least three days' notice, and reports to the Court within sixty days of appointment or within any longer period the Court allows.

The deal, and who votes on it

Section 202ΙΘ(1)(a) requires the examiner, as soon as possible after appointment, to formulate proposals for a compromise or scheme of arrangement. Sections 202ΚΓ and 202ΚΔ deal with the proposals and how they are considered.

Only affected parties may attend and vote at a meeting called to consider proposals, under section 202ΚΔ(1A), a restriction introduced when the Companies Law was amended by the Companies (Amending) (No. 4) Law of 2022, Law 213(I)/2022.

The threshold is not what most people assume. Under section 202ΚΔ(3), proposals are taken to be accepted by a meeting of a class when a majority in value of the total claims, or of the total interests, in that class has voted in favour. It is a value test, and the number of creditors voting does not decide it.

Variations may be put at the meeting, but under section 202ΚΔ(2) they can be accepted only with the examiner's approval. Under section 202ΚΔ(2A) the company may put forward proposals of its own, different from the examiner's, whoever made the original application.

Confirmation is not a formality

Acceptance by the classes does not end it. Under section 202ΚΕ(3) the Court may confirm the proposals, confirm them with modifications, or refuse to confirm them.

The proviso to that subsection tells you what the Court weighs: whether the proposals are fair and in accordance with the principles of equity, the continuation of the business activity, the saving of jobs, the reasonable prospect of averting the company's insolvency or securing the viability of the undertaking, and whether the classification of affected parties into classes was properly done.

Section 202ΚΕ(2) gives the company, the examiner, any affected party and any interested party the right to appear and be heard, and section 202ΚΣΤ provides for objection to confirmation.

Classification is where these applications are won and lost. A creditor who believes it has been put in the wrong class, or grouped with claims unlike its own, is raising the point the Court is expressly directed to consider.

If you are the creditor

The practical consequences arrive before any of the law does. Enforcement stops on filing. A judgment you were about to execute cannot be executed without the examiner's consent. Security cannot be realised. And the four months can become twelve.

What you retain is a vote weighted by the value of your claim, a right to be heard on confirmation, and a right to object. Whether the proposals leave you better off than a liquidation would is the question worth answering early, because by the time confirmation is heard the arguments have to be made rather than assembled.

Making an enquiry

Briefly describe your matter and mention any deadline. You do not need to gather documents before getting in touch.

Send an enquiry →Email us+357 22 680 330

Information we may need later

Once we confirm we can act, we will explain what to provide. The following information is for the subsequent review, not your first message.

If you are the company: the latest management accounts, the ageing of creditors, and the list of secured claims and what they are secured on. If you are a creditor: the contract or judgment, what security you hold, and any notice you have received. The first question is always the same one section 202Α(2) asks, whether there is a business here that survives, and everything else follows from the answer.

Questions we are asked

Related reading

This work sits within our restructuring and insolvency practice. Where the company cannot be saved, the procedure is set out in winding up a Cyprus company. For a creditor deciding how to press an unpaid debt before any of this begins, see recovering a debt from a Cyprus company that will not pay. The duties directors owe once insolvency is in sight are covered in directors’ duties when a Cyprus company is insolvent. The wider options open to an unpaid creditor are in debt recovery.

This article is for general information only and does not constitute legal advice. Laws and their application can change, and individual circumstances differ. For advice on your own matter, contact Klitos Platis at klitos@kleanthousplatis.com or telephone +357 22 680 330.

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