General Information on the National Insolvency Framework
Main insolvency proceedings
The Insolvency Department is responsible for the efficient implementation of insolvency proceedings as arising from the legislation of the national insolvency framework. The aim of the insolvency framework is to maintain employment, reduce the number of non-performing loans, encourage economic activity and ensure social cohesion.
In national legislation, insolvency proceedings for the rescue and restoration of business activity, as well as for the reconstruction and maintenance of viable undertakings are supported by established company debt restructuring mechanisms regarding the Appointment of examiners and the Appointment of receivers/administrators.
The effective management of the bankruptcy estate is supported by the insolvency proceedings regarding the Compulsory winding-up by Court order and the Voluntary winding-up (by members, by creditors, subject to Court supervision).
Insolvency proceedings for the sustainability of natural persons are supported by the debt restructuring mechanism, through the Personal Repayment Plan, and the debt relief mechanism through the Debt Relief Order.
Also, through the insolvency proceedings relating to the Bankruptcy order following a Court order, the effective management of the bankruptcy estate is ensured and at the same time entrepreneurs and/or indebted individuals are given a second chance through the automatic discharge along with the a relief from their verifiable debts.
Obligations for debtor/company directors arising from a viability assessment
The current legislation does not provide for any business viability assessment, from which specific obligations arise for the debtor or the directors of the business.
Viability assessment in order to demonstrate that the company has reasonable survival prospect is provided for where an examiner is appointed, as a prerequisite for the issue of an examiner’s appointment order.
Directors' liability for insolvency-related duties
The liability of the officers of the company in insolvency matters is laid down in the Company Law. Officers have, among others, the following obligations:
- Where an examiner is appointed, officers should present all the books and documents of the company to them, as well as provide any help they may need regarding their functions.
- Where a receiver/administrator is appointed, the company/officers must deliver a statement of its assets to the receiver/administrator. Also, every document bearing the trade name of the company should include a statement regarding the appointment of a receiver/administrator of its property.
- In the case of Winding-up, the officers should:
- Fill in the relevant questionnaire regarding the affairs of the company;
- Submit a statement of the company’s property status;
- Assist the liquidator to register and identify the company’s property; and
- Provide any information requested with relation to the company.
The legislation also includes provisions on the officers’ actions prior or during the winding-up that are considered offences. It is also provided that, following the issue of a winding-up order and upon request of the official receiver or liquidator for the examination of the officers, the Court examines whether there has been fraud when the company was carrying out its business. Moreover, omission fees and the definition of an officer in charge of an omission are laid down.
Appointment of an insolvency pratitioner in insolvency proceedings
In accordance with the provisions of Article 8 of the Law on Insolvency Practitioners ‘Any person may act as an insolvency practitioner at any time, if they own a valid insolvency practitioner licence at that point’, which has been issued pursuant to the provisions of the Law. The article also sets out the cases where an individual cannot be appointed as a practitioner in insolvency proceedings, for example in the case of a legal person or a bankrupt individual who has not recovered or holds a public office or has been convicted for an offence.
Who appoints insolvency practitioner
The appointment of insolvency practitioners in insolvency proceedings is determined in accordance with the provisions of the legislation in each procedure. The company, the debtor, the creditors, the Court or the official receiver may proceed to the appointment.
As laid down in the Company Law, in the procedure for the Appointment of examiners, the Court may appoint an examiner, following a petition filed before it. The petition includes a suggestion on the person to be appointed as examiner, who has the qualifications to act as an insolvency practitioner.
In the case of company winding-up by Court order, the Court may appoint a licensed insolvency practitioner as a temporary liquidator at any time after the filing of a winding-up petition to the Court, for the protection of the assets and the maintenance of the company’s status. When a winding-up order is issued, given their capacity the official receiver serves as liquidator. Upon request of the official receiver, the Court may appoint any other person as liquidator. Moreover, any other person may be appointed as liquidator in the Creditors’ and contributors’ meetings. The official receiver may request the appointment of a special administrator by the Court.
In the case of voluntary winding-up by its members, the Company appoints one or more liquidators. In the case of voluntary winding-up by its creditors, the liquidator is appointed by the creditors and the company so as to settle the affairs of the company and distribute its assets. When an order on the voluntary winding-up subject to Court supervision is issued, the Court may appoint an additional liquidator by virtue of this order or any other subsequent order.
In the case of Bankruptcy, as laid down in the Bankruptcy Law, the Court may appoint a licensed insolvency practitioner (or the official receiver) as temporary administrator. The official receiver may, upon request of the creditors and approval of the Court, appoint a special administrator. As soon as the bankruptcy order is issued, the official receiver is appointed as administrator. The creditors in their meeting may appoint a private administrator from the list of licensed professionals.
In the case of Personal Repayment Plan, as provided for in the Law on the Insolvency of Natural Persons, the debtor selects and appoints an insolvency practitioner to act on their behalf.
Conditions for the appointment of an insolvency practitioner by another MS
The conditions that must be met by natural persons/professionals so as to be licensed to act as insolvency practitioners are provided for in Article 14 of the Law on Insolvency Practitioners.
The provisions of the Article refer to the recognition of professional qualifications of nationals of other Member States: ‘(6) The requirements set out in this Article are applied in full respect of the provisions of the Law on the Recognition of Professional Qualifications, with relation to the nationals of a Member State who have obtained professional qualifications in Cyprus and wish to act as insolvency practitioners in Cyprus, and any third-country nationals who, in accordance with the law, have the same rights in terms of the recognition of certificates, diplomas or other professional qualifications with Cypriot nationals’.
How claims from employees are treated
In the case of a company winding-up by Court order, the claims from employees are treated as preferential payments and are paid before any other debts. Similarly, in the case of Bankruptcy, when the bankrupt’s property is distributed, the employees’ fees debts are paid first.
Special arrangements facilitating insolvency proceedings for SMEs
There are special arrangements facilitating insolvency proceedings for SMEs through the personal repayment plan procedure providing for coordinated repayment plans for natural persons and very small businesses (Law on the Insolvency of Natural Persons, TITLE IV).
According to the plan, in case that the main residence of the debtor serves as a collateral for the debt of a very small business, the debtor may, while being subject to the personal repayment plan procedure, at the date of issue of the protection order, file an application for the appointment of an examiner for the business, so as for the coordinated repayment plan procedure to commence.
Circumstances where a debtor can continue to carry on business during rescue or insolvency proceedings
During rescue or insolvency proceedings, an undertaking may carry on business:
- Through the protection and debt restructuring framework provided for in the process of examiner Appointment;
- In the settlement for restructuring and liquidating part of the property provided for in the process of receiver Appointment; and
- In the personal repayment plan in the context of coordinating repayment plans and natural persons and very small businesses.
Release of over-indebted entrereneurs/citizes form unsecured debts
Over-indebted entrepreneurs/citizens may be released from non-secured debts in the context of:
- The Bankruptcy procedure, where a full relief from verifiable debts is provided. A second chance is also provided through the automatic discharge of the bankrupt, after the lapse of 30 years from the date of issue of the Bankruptcy Order; and
- The Debt Relief Order procedure which allows relief from unsecured debts of up to EUR 25 000 for insolvent natural persons.
Rules on access to finance for second starters
In the case of Bankruptcy, no debtor may ensure a credit for an amount equal or higher than EUR 650 during the process and until their recovery, without notifying the creditor in advance that they are a bankrupt individual who has not recovered. A debtor during the procedure of a personal repayment plan is also obliged to notify the creditor.
