Until recently insolvent companies registered in Cyprus had only two options: to come to a compromise with their creditors, or to be wound up. Arriving at a compromise depended on retaining the goodwill and cooperation of all the creditors until the process was complete: there was nothing to stop any creditor taking individual enforcement action and derailing the entire process, while winding-up brought the company’s existence to an end.
In order to alleviate the problem, many countries around the world introduced laws to provide viable companies facing temporary cash flow problems with a “breathing space”, free from the threat of creditor action, while they come to an agreement with their creditors. The best known of these is the American “Chapter 11”, which has allowed thousands of American companies, including such household names as General Motors, United Airlines and Kodak, to stay afloat.
In 2015 the Cyprus Companies Law was amended to introduce a similar procedure called “examinership”. This enables a court to impose a moratorium on creditor action for up to four months (which may subsequently be extended) in order to facilitate a company’s survival as a going concern, as long as the court is satisfied that the company has a reasonable prospect of survival. The process can be initiated by the company itself or by any of a wide range of stakeholders. During the period of examinership, control of the company is in the hands of an “examiner”, an independent professionally-licensed insolvency practitioner, whose role is to investigate the company’s affairs, financial position and prospects and, if possible, formulate proposals for a compromise with the company’s creditors.
Any proposals put forward by the examiner require approval by the court before they can be implemented. The court has wide discretion and may adjust or reject the proposals subject to the overriding proviso that the compromise must not result in a worse outcome for creditors than immediate winding up.
The examinership process is as yet untested, but it is a worthwhile first step in promoting a “rescue” culture in Cyprus.
“For further information on this topic please contact a member of our dedicated insolvency team or in the first instance Demetris Roti by email at [email protected].”