A Cypriot NPL issue: At what price should secured assets be sold by creditors?

As the economy of Cyprus recovers from the problems of the past, NPLs are a factor negatively affecting the financial prospects of the country. Among the relevant issues arising is the extent to which the creditors are obliged to pursue the best price in the process of selling the pledged assets. Dimitris Roti and Ioannis Sidiropoulos of our firm have recently written an article published in the Fileleftheros newspaper, providing an analysis on this problem, which affects the interests of many debtors and creditors in our country.

There is UK and Cyprus case law addressing the issue. UK cases like Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) and Medforth v Blake and Ors (1999) stated that the creditor/pledgee is not under any obligation to sell, he does not have to achieve the best price and this price is not necessarily equal to the true market value. However, if he opts to sell, he must act with reasonable care in order to achieve the true market value at the date of the sale and he should demonstrate good faith and due diligence. Cyprus cases follow the same principles. In Hellenic Bank v Polydoridi (1993), the perception of a prudent entrepreneur in the context of managing his business was set as an important criterion.

Therefore, there is no obligation for the creditor to seek absolute maximization of the price. In case that the creditor decides to sell, he must achieve the highest achievable price at the exact time of the sale, considered on a case-by-case basis and having regard to the circumstances. The option of cancelling the transaction is always available, if, fraud or other dishonest conduct on the part of the creditor is established.

If you have any questions or require any clarification on this matter, please contact Demetris Roti or your usual contact at Elias Neocleous & Co LLC.