THE EXAMINERSHIP - Amendments to the Cyprus Legislation
The Companies Law, Cap.113 as amended by the 89(I)/2015, 63(I)/2015 and 62(I) 2015introducedthe examinership procedure, a process attempting to rescue companies facing insolvency from its creditors by providing a period of time where the company is placed under the court’s protection while its business is assessed bythe Examiner. During this certain period the Examiner ascertains whether the company may be rescued and prepare a rescue plan.
WHO CAN REQUEST PROTECTION
The court petition may be filed by:
· the company;
· a creditor of the company;
· a member of the company holding not less than ten per cent of the paid up voting share capital;
· a guarantor of the company’s obligations /liabilities .
WHAT ARE THE REQUIREMENTS
There is a number of requirements to be satisfied by the company for an Examiner to be appointed by the Court.
· The company must be unable or likely to be unable to pay its debts. In deciding whether to take decision under s. 202 A CAP 113 the court may also take into consideration whether the company has requested significant extensions on the payment of its debts, or whether the value of the company’s assets are less than its liabilities, or having creditor demanding in writing amount exceeding Euro 5.000 and the company has neglected to satisfy the creditor, or whether a Court order in favour of a creditor which remains unsatisfied.
· No resolution to be passed for voluntary winding-up of the company;
· No order to be made for the winding-up of the company by the Court;
· No receiver to be appointed for more than 30 days.
WHAT IS THE“PROTECTION PERIOD”
The Company may be placed under the protection of the Court for four calendar months from the date of the presentation of the petition, the Examiner thoughmay request the extension of the protection period for another 60 days. Therefore the maximum period shall be six calendar months. During this period, if granted, the Examiner shall prepare and present to the court proposals for a scheme of arrangement. Upon presentation of the report of the examiner, the Court may extend the protection period further until their decision whether to approve a scheme of arrangement or not.
THE APPOINTMENT OF THE EXAMINER
Such position may be held by an individual qualified as an “insolvency practitioner”. The Examiner may be appointed by the Court only where there is a reasonable prospect of survival of both the company and the whole or part of the company’s undertakings as a going concern. The whole or part of the company’s undertakings shall remain with the company, therefore disposing its assets or business is not accepted. The interests of employees may also be relevant to the Court’s decision to appoint the Examiner, though the Court will practice its discretionary power considering whether any creditor will be prejudiced as a result.
The Court may fill the Examiner’s vacancy upon his resignation or removal by the Court.
THE RELATED COMPANIES
The Court may appoint an Examiner to any subsidiary or holding or associate company (as defined in the Cyprus Companies Law, Cap.113 as “related company”), therefore connected to Cyprus. Such appointment, may prevent attack against any related company. For the appointment of an examiner to related companies the Court will require the satisfaction of the same preconditions aforesaid separately. Examiner who is appointed in at least two related companies shall exercise his powers separately in relation to each other unless the Court ordersotherwise.
THE INDEPENDENT EXPERT’S REPORT
An independent expert’s report must be accompanying the petition. Such expert may be the auditor of the company or an “Insolvent Practitioner”. The report shall provide the information for the Court to be able to decide whether the company has a viable future as well as any possible arrangements (steps) to achieve this.
WHAT IS THE EFFECT OF THE PROTECTION AGAINST CREDITORS
During the protection period the creditors are unable to aim at remedies such as petition to wind-up or the appointment of receiver.
In case there is outstanding petition for winding-up, both petitions will be heard together and the Court will decide either to appoint an Examiner or put the company under winding-up.
WHAT IS THE EFFECT OF THE PROTECTION AGAINST GUARANTORS
During the protection period no proceeding may be introduced against any guarantor to pay any company debt. In case a creditor serves a demand, such guarantee cannot be enforced during the protection period.
WHAT ABOUT THE PRE-PETITION LIABILITIES
Liabilities established prior the protection period may be paid to employees (salaries in arrears) or to essential suppliers (electricity authority, water board, telephone companies)
THE POWERS VESTED IN THE EXAMINER
The Examiner with his appointment is vested with the rights of the auditor of the company, giving him the authority to conceive proposals to rescue the company.
The Examiner has certain powers including upon the Court permission the power to administrate, manage the company and dispose charged property or other security that ease the rescue of the company.
FORMULATING PROPOSALS FOR SCHEME OF ARRANGEMENT
Proposals for scheme of arrangement shall specify each class and should be presented as soon as possible and report to the Court within 60 days of the appointment of the Examiner, unless another timeframe is given by the Court.
The company’s officers are required to reasonable assist the Examiner to his duties. If at any time during the protection period the examinership the Examiner realizes that the company cannot be rescued he should immediately inform the Court accordingly.
MEMBERS’ AND CREDITORS’ MEETINGS DURING THE PROTECTION PERIOD
Meetings of Members or Creditors may be convened during the protection period by the Examiner.
Such meetings may lead to approval, rejection or modification of any proposal of the Examiner. Acceptance of the majority in number and in value of claim/creditor represented by the meeting of the creditors shall be considered in favour. On the other hand where there is no approval of the proposal by the members of the company, the Court will determine whether these proposals shall be approved or not.
WHAT ABOUT THE EXPENSES OF EXAMINERSHIP
Certain liabilities may be certified by the Examiner during the protection period as “reasonable expenses property incurred”. Such certified expenses shall be paid in full before any other claim, including a claim secured by a floating charge, but after any claim secured by a mortgage, charge, lien or other encumbrance of a fixed nature or a pledge, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.
THE CONTENT OF THE EXAMINER’S REPORT
The Examiner's report shall include the proposals, any modification and outcome of the required meetings, the recommendation of the committee of creditors, if any, a statement of the assets and liabilities, a list of the creditors of the company, the amount owing to each and the nature and value of any security held, a list of the officers of the company, his recommendations, evidence of notifications made to the registrar, such other matters as the Examiner deems appropriate or the court directs.
THE COURT’S DECISION
In case the Court confirms the proposal, all parties affected will be bound. On the other side where the Court will reject the proposal, the latter will order the winding-up of the company, or any other order as it deems fit.
CONCUSION
The introduction of the Examinership to the Cyprus Companies Law, Cap.113 as an insolvency mechanism aims to the restructuring of debts, the restoration of business activity and subsequently may contribute to financial growth and the keeping of the employment promoting the Cyprus economy. However only companies with prospect of survival may be placed under Examinership and this mechanism should not be considered as a path to avoid creditors and liabilities.
For further information on this topic please contact Mrs. Pauline Alexopoulou (palexopoulou@pittaslegal.com) and
Mrs. Lisa Bokova (lbokova@pittaslegal.com) at SOTERIS PITTAS & CO LLC,
by telephone (+357 25 028460) or by fax (+357 25 028461)
The content of this article is intended to provide a general guide to the subject matter. Specialist advise should be sought about your specific circumstances.
