CYPRUS: Can English Schemes of Arrangements sanctioned pursuant to the UK Companies Act 2006 be recognized and enforced in Cyprus or create any legal effects in Cyprus?

 

CYPRUS: Can English Schemes of Arrangements sanctioned pursuant to the UK Companies Act 2006 be recognized and enforced in Cyprus or create any legal effects in Cyprus?

 

It is indisputable that over the years England has established itself as a go-to jurisdiction for implementing schemes of arrangements. This is due to inter alia the fact that English law permits overseas companies which are liable to be wound up under the UK Insolvency Act 1986, to take advantage (under certain circumstances) of the English legal regime applicable to schemes (see inter alia Re Rodenstock GmbH [2011] EWHC 1104 (Ch)).

 

The fact that English law permits Cypriot companies to use (under certain circumstances) this restructuring tool, gives rise to difficult questions relating to the recognition and enforceability in Cyprus of such decisions sanctioning the English schemes, as well as questions whether such sanctioned schemes create any legal effects in Cyprus.

 

Until now, these questions seem to remain unanswered from the perspective of EU and Cyprus law.

 

If UK had remained part of the EU, the situation would have become quite more straightforward in light of the adoption of Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications and measures to increase efficiency (Preventive Restructuring Frameworks Directive) and amending Directive (EU) 2017/1132 on certain aspects of company law (codification), which aims to inter alia address such issues to some extent.

 

Since UK is no longer a Member State of EU, an English Judgment cannot be recognised and enforced in Cyprus, pursuant to the Brussels Recast Regulation or the Insolvency Recast Regulation. Therefore, the only available method for the recognition and enforcement of judgments of courts of the United Kingdom (and in this case of decisions sanctioning English schemes), is through the procedure stated in the Foreign Judgments (Reciprocal Enforcement) Law 1935, CAP. 10 (as amended by Law 130 (1)/2000), which regulates the recognition and enforcement of judgments in civil or criminal proceedings obtained in Superior Courts in the United Kingdom regardless if same do not award any monetary sum.

 

A judgment of an English Court sanctioning the Schemes of Arrangement will not be enforceable under CAP. 10. This is because a “judgement” for the purposes of CAP. 10 only includes decisions which arise out of adversarial proceedings that resolve a dispute between the parties before it. A judgment sanctioning the scheme does not serve that function, and is not preceded by an adversarial hearing on the rights and liabilities of the parties in relation to the dispute that presently exists between them. Cypriot law (guided by EU law) will make a distinction between a decision culminating out of the court sanctioning a scheme negotiated between debtors and certain creditors, and a decision in which a court deciding on its own authority settles disputes and issues between the parties (see inter alia the case of C-414/92 Solo Klinmotoren GMBH v Boch (ECJ) (1994) ECR I-2237).

 

Even if such a decision was to be considered as falling within the term “judgement” in CAP. 10, in case the sanctioned schemes purport to relieve companies with their COMI and domicile in Cyprus from their obligations by restructuring their debts, then such a decision would also likely be in breach of Cypriot public policy for inter alia bypassing the exclusive jurisdiction of Cypriot Courts.

 

In light of the above inability to recognize and enforce such foreign decision in Cyprus, such decision sanctioning the English schemes does not create any legal effects in Cyprus and cannot be relied on within the jurisdiction (see inter alia Interdepartmental Concern OAO Uralmetrom v Besuno Ltd, Civil Appeal No. 269/2009, Decision Dated 20/02/2014).

 

In parallel with the above, there is available English case law in which it has been argued that Schemes of Arrangement can be recognized pursuant to Articles 3(1) and 12(1)(d) of Rome I Regulation as a matter of substantive law insofar as the facility affected by that scheme is governed by law, giving extinguishing effect to that Scheme.

 

It is the position of the author that such position is fundamentally incorrect on inter alia the following grounds:

 

(i) A Scheme of Arrangement which is not accepted /approved by all parties entitled to vote in the context of such scheme, does not fall within the definition of “Contractual Obligations” contained in Article 1 of Rome I, and consequently Rome I does not apply. Holding otherwise would contradict with the interpretations given to the term “Contractual Obligations” by the ECJ and the English and Cypriot courts (see inter alia C-359/14 and C-475/14 ERGO Insurance SE & Another v Gjensidigc Baltic AAS & Another and Base Metal Trading Ltd v Shamurin (2004) EWCA Civ 1316).

 

(ii) Even if a sanctioned and approved Scheme of Arrangement was to be considered by European Courts as falling within the meaning of the term “Contractual Obligations” as stated in Rome I, there are also good grounds for arguing that Rome I still not applies due to Article 1(2)(f) of Rome I, which provides that matters regulated by the laws of Companies are excluded from the ambit of Rome I.

 

(iii) Regardless of the above, a Scheme of arrangement purporting to restructure the debts of a company whose COMI or domicile is situated in Cyprus, and which was approved by an English Court, would be likely held by Cypriot Courts as violating mandatory provisions of inter alia Cypriot Companies Laws CAP. 113, including Sections 198-201 of CAP. 113, as well as that same violates the public policy of the Republic of Cyprus.

 

The content of this article is intended to provide the views of the author on the complicate issues which arise in relation to the subject matter, and same does not constitute a legal advice. Specialist advice should be sought about your specific circumstances.

 

 

 

 

For further information on this topic please contact

Mr. Kyriakos Pittas ( kpittas@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.

PUBLICATIONS 2022

European Court of Justice: the provision whereby t...
28 Nov 2022 07:06

    On 22 November 2022, the European Court of Justice held that the general public’s access t [ ... ]

read more
CYPRUS: Can English Schemes of Arrangements sancti...
24 Jun 2022 06:22

  CYPRUS: Can English Schemes of Arrangements sanctioned pursuant to the UK Companies Act 2006 be  [ ... ]

read more
Cyprus Funds eligible as Foreign Portfolio Investo...
02 Jun 2022 10:19

  Cyprus Funds eligible as Foreign Portfolio Investors in India   The Minister of Finance of In [ ... ]

read more
Cyprus: TAX- amendment to the Income Tax Law and S...
26 May 2022 07:43

  Cyprus – TAX- amendment to the Income Tax Law and Special Contribution for Defence Law for the [ ... ]

read more

PUBLICATIONS 2021

English guidance on the possibility of use of conf...
15 Dec 2021 09:42

  CYPRUS: English guidance on the possibility of use of confidential documents disclosed in arbitr [ ... ]

read more
Cyprus: Alternative Investment Funds – An Overview...
03 Dec 2021 09:31

  Cyprus: Alternative Investment Funds – An Overview   1. Types of available Alternative Inve [ ... ]

read more
CYPRUS: English guidance on the applicable legal p...
11 Oct 2021 07:56

  CYPRUS: English guidance on the applicable legal principles for setting aside an arbitral Award  [ ... ]

read more
The jurisdiction of the District Court to issue “v...
28 Jul 2021 07:05

  The jurisdiction of the District Court to issue “venire de novo” order   Another success  [ ... ]

read more
Enforcement of pledge under Cyprus Law and the sta...
06 Jul 2021 07:18

  CYPRUS: Enforcement of pledge under Cyprus Law and the statutory obligation of pledgee, to give  [ ... ]

read more
CYPRUS: Re-domiciling a British Company to Cyprus ...
16 Jun 2021 05:52

  CYPRUS: Re-domiciling a British Company to Cyprus due to Brexit   One of the main issues that [ ... ]

read more
Enforcement of Pledges under Cyprus law over share...
09 Mar 2021 09:34

  CYPRUS: Enforcement of Pledges under Cyprus law over shares of a Cypriot Company   A pledgee [ ... ]

read more
Powers of Pledgee, under Cyprus Law
18 Jan 2021 10:27

  CYPRUS: Powers of Pledgee, under Cyprus Law   Under Cyprus Law, a pledgee, in the event of de [ ... ]

read more

PUBLICATIONS 2020

English Guidance on which companies can be conside...
17 Dec 2020 10:05

  CYPRUS: English Guidance on which companies can be considered as “quasi partnerships”.    [ ... ]

read more
English Guidance on the grounds of winding up of c...
02 Dec 2020 08:12

  CYPRUS: English Guidance on the grounds of winding up of companies on the just and equitable bas [ ... ]

read more
Locus standing of shareholder to petition the wind...
29 Oct 2020 10:07

  CYPRUS: Locus standing of shareholder to petition the winding up of his company, on the Just &am [ ... ]

read more
BILATERAL AGREEMENT BETWEEN CYPRUS AND THE UNITED ...
15 Sep 2020 08:53

  CYPRUS: BILATERAL AGREEMENT BETWEEN CYPRUS AND THE UNITED STATES   The Cyprus Tax Department  [ ... ]

read more
ENGLISH GUIDANCE ON THE OBLIGATION OF A PARENT COM...
10 Sep 2020 12:07

  CYPRUS: ENGLISH GUIDANCE ON THE OBLIGATION OF A PARENT COMPANY TO DISCLOSE DOCUMENTS OF IT’S S [ ... ]

read more
Cyber Libel or Defamation committed through the In...
28 Jul 2020 07:35

  Cyprus: Cyber Libel or Defamation committed through the Internet and jurisdiction of Cypriot Cou [ ... ]

read more
Enforcement of Arbitral Award – Are the criteria o...
10 Jul 2020 08:19

  Cyprus: Enforcement of Arbitral Award – Are the criteria of Article IV of New York Convention  [ ... ]

read more
The Bilateral Treaty between Russia-Cyprus does no...
01 Jul 2020 13:53

  CYPRUS: The Bilateral Treaty between Russia-Cyprus does not give jurisdiction to Cypriot Courts  [ ... ]

read more
Corporate Measures undertaken by the government in...
23 Jun 2020 11:51

  Cyprus: Corporate Measures undertaken by the government in response to COVID-19   As part of  [ ... ]

read more
Cypriot Courts do not have jurisdiction to adjudic...
19 Jun 2020 07:16

  CYPRUS: Cypriot Courts do not have jurisdiction to adjudicate on an application for enforcement  [ ... ]

read more
What will happen to Cyprus Russia Double Tax Treat...
17 Jun 2020 08:47

  Cyprus -Russia. Cyprus Double Tax Treaty   What will happen to Cyprus Russia Double Tax Treat [ ... ]

read more
CYPRUS: English Guidance on the Correct Test to Ap...
04 Jun 2020 09:09

  CYPRUS: English Guidance on the Correct Test to Apply for Existence of Legal Advice Privilege  [ ... ]

read more
Guidance from common Law cases, regarding the requ...
20 May 2020 06:40

  CYPRUS: Guidance from common Law cases, regarding the requirements to be met by an Applicant for [ ... ]

read more
Power of the Court to Order the Continuation of a ...
04 May 2020 08:44

  CYPRUS: Power of the Court to Order the Continuation of a Mareva Injunction and Receivership Pos [ ... ]

read more
CYPRUS: Creditors who have locus standi to petitio...
14 Apr 2020 13:48

  CYPRUS: Creditors who have locus standi to petition the winding up of a Cypriot Company   Sec [ ... ]

read more
Soteris Pittas & Co LLC contributes the Cyprus Cha...
06 Apr 2020 13:14Soteris Pittas & Co LLC contributes the Cyprus Chapter for the 12th edition of the Dispute Resolution Review

  Soteris Pittas & Co LLC contributes the Cyprus Chapter for the 12th edition of the Dispute R [ ... ]

read more
Necessary Ingredients for Ascribing Accessory Liab...
05 Mar 2020 13:21

  Cyprus: Necessary Ingredients for Ascribing Accessory Liability to Third Parties for Dishonest A [ ... ]

read more
Cyprus: Attributing the Knowledge of a Person to t...
13 Feb 2020 08:52

  Cyprus: Attributing the Knowledge of a Person to that of the Corporation   On the issue of at [ ... ]

read more
Security for the Loan. Fixed and Floating Charges ...
05 Feb 2020 08:59

  Security for the Loan. Fixed and Floating Charges under Cyprus Law.   Charges under Cyprus la [ ... ]

read more
When a Cypriot Company shall be deemed “insolvent”...
30 Jan 2020 08:02

  CYPRUS: When a Cypriot Company shall be deemed “insolvent”, thus giving jurisdiction to Cypr [ ... ]

read more
More Publications 2020

Subscribe to our Publications

Image
We are dedicated to providing our clients with outstanding, highly personalized, legal representation.
Chrysanthou Mylona 10 
3030 - Limassol, Cyprus
© Soteris Pittas & Co LLC. All Rights Reserved.
Image