Examinership was introduced to the Companies Law (Cap 113) in 2015 as a restructuring procedure for companies in financial distress with reasonable prospects of continuing as a going concern.
In examinership, pursuant to Sections 202A to 202ΛΗ of the Companies Law (Cap 113), the distressed company enjoys a temporary four-month moratorium against claims from creditors (which may be extended) and an insolvency practitioner is appointed as the company's examiner. The examiner's role is to propose a restructuring proposal, which must be approved by the majority of creditors and approved by the courts in order to become binding.
Examinership is initiated through a petition filed in court by either:
- the company;
- a creditor of the company;
- a guarantor of the company's obligations; or
- any members of the company holding not less than 10% of its paid-up voting share capital at that time.
The courts may exercise the power to place a company under examinership where it is, or is likely to be, unable to pay its debts and is not in liquidation.
In a recent judgment, the Larnaca District Court rejected an application for examinership on the basis that the same had been promoted abusively and only for the purposes of obstructing the company in question's creditors.(1) The court based its judgment on the fact that while the company had been in financial distress for more than two years, the application for examinership had been filed only after a receiver had been appointed pursuant to the provisions of a floating charge.
The examinership framework offers an effective mechanism for restructuring financially distressed companies; however, on the basis of the limited case law guidance available in Cyprus, 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.
For further information on this topic please contact Andreas Erotocritou or Alexis Erotocritou at AG Erotocritou LLC by telephone (+357 25 370 101) or email ([email protected] or [email protected]). The AG Erotocritou LLC? website can be accessed at www.erotocritou.com.
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