Cyprus offers an attractive alternative to court-sanctioned debt restructurings through the reduction of the statutory majority necessary for approving a scheme of arrangement.
Recent statutory amendments in this regard have:
- reduced the required statutory threshold for approving a scheme of arrangement to a simple majority in value of creditors present and voting; and
- eliminated the former requirement to secure a special majority of 75% in both value and the number of creditors present and voting.
Following the approval of a scheme of arrangement by the required statutory majority, the arrangement may be brought before a judge for approval, upon which it becomes binding on all parties involved.
Decisions and rulings of Cyprus courts are generally recognisable and enforceable in the European Union, China, Russia, Belarus, Ukraine, Georgia, Switzerland, Norway, Iceland, Denmark and Serbia, which makes Cyprus an attractive jurisdiction for pursuing global restructurings.
Recent statutory enactments have:
- amended Section 198 of the Companies Law (Cap 113), lowering the required threshold for creditor approval of a scheme of arrangement to a simple majority in value (over 50%) for each class of creditor voting for the arrangement; and
- eliminated the need for securing a special majority in value and in size (over 75%) under the previous regime.
The procedure for pursuing a scheme of arrangement is governed by Sections 198 to 201 of the Company Law (Cap 113).
A scheme of arrangement may be pursued by:
- the company in financial distress;
- any company creditor or shareholder; or
- the company liquidator where the company is in liquidation.
Pursuing a scheme of arrangement entails the following four-step procedure:
- Preparation and drafting – the preparation and drafting of the scheme of arrangement usually entails hiring financial experts who, together with a legal team, will draft the necessary documents (including the scheme document), an explanatory statement and an insolvency report.
- Convening a creditors' meeting – the scheme documents must be presented before a judge who will:
- consider the arrangement;
- address issues of jurisdiction and creditor classification; and
- authorise the convening of a creditors' meetings.
- Creditors' meetings – the affected creditors must be:
- invited to vote for the arrangement; and
- separated into classes of creditors by taking into account their rights pre and post-sanctioning of the arrangement.
- Approval hearing – if a simple majority in value of the creditors present and voting for each class of creditors is secured, the arrangement may be brought before a judge for sanctioning. At this stage the judge will assess the scheme's fairness and consider the position of opposing creditors who will be invited to attend the hearing.
In considering a scheme of arrangement, Cyprus courts will follow the guidance offered by decisions in other common law jurisdictions, including England, Singapore and Hong Kong, which are directly applicable in Cyprus through Section 29(c) of the Court of Justice Law (14/1960). This provides the proceedings with certainty and expertise.
The wide range of bilateral and multilateral treaties enjoyed by Cyprus means that decisions and rulings of the Cyprus courts are generally enforceable throughout the European Union, China, Russia, Belarus, Ukraine, Georgia, Switzerland, Norway, Iceland, Denmark and Serbia. This reinforces the court-approved arrangement with the required cross-border enforcement and implementation tools.
Pursuing a scheme of arrangement in appropriate circumstances has advantages over the alternative insolvency procedures of examinership or liquidation, including:
- offering a flexible, operational, creative and simple mechanism for restructuring debt;
- being cost-effective by avoiding costs relating to investigation, administration of examinership and liquidation proceedings; and
- allowing a company in financial distress to continue as a going concern.
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.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.