Paramount to any description of the corporate lending market in Cyprus is an understanding of its role as an international financial centre. With one of the most beneficial tax regimes in the EU, a vast network of bilateral tax treaties, a comprehensive legal system fully harmonised with EU law and its highly educated and skilled workforce, Cyprus has, for the past decades, established itself as an international business hub, where numerous international businesses and high net worth individuals, predominantly from Russia and other Member States of the Commonwealth of Independent States, base their corporate and trust structures for tax efficiency, asset protection and other legitimate commercial benefits. Because of, inter alia, the adoption of a tax tonnage system, Cyprus is also a major shipping jurisdiction. What is more, Cyprus is now increasingly becoming a financial services jurisdiction, having more than 200 EU-licensed investment firms basing their worldwide operations on the island.2 Accordingly, the corporate lending market in Cyprus can be described as being divided into two major categories: on the one hand, the corporate lending activities that fuel the Cyprus economy, involving local financial institutions and local corporate borrowers; and on the other hand, the voluminous and heavily varied corporate lending activities of major international financial institutions, private wealth and multinational corporations, which conduct lending activities through Cyprus corporate entities whose underlying assets and business activities are offshore.

In terms of the local aspect of corporate lending to non-financial corporations, which is a market of approximately €22 billion,3 there was almost no activity in the first years following the collapse of the Cyprus banking industry back in March 2013, caused predominantly by the sovereign debt crisis and resulting in a bail-in and consequent haircut for depositors and a rigorous austerity programme that was imposed by the troika, made up of the European Commission, the International Monetary Fund and the European Central Bank (ECB). As a result, the priority concern of the majority of the local banks was to survive the heavy scale of non-performing loans, at times reaching 50 per cent,4 through capitalisation and reform, thus leaving no room for further lending activities. Within a couple of years, Cyprus has managed to exit the imposed bail-out programme without even utilising the full loan amount, has returned to positive growth with promising projections and has also returned to the capital markets. Taking also into account moves by the ECB to incentivise economic activity, such as qualitative easing and negative interest rates, we are now seeing local banks lending again, albeit cherry-picking credible borrowers and always making sure they have ample security in real assets. In this connection, noteworthy are the significant developments recorded in the fourth quarter of 2016 by the Central Bank of Cyprus,5 namely an increase in net loan demand by both enterprises and households in Cyprus, reflecting the improving economic climate and the Cyprus banks' expectations for an even higher net loan demand by enterprises and households in 2017, mainly driven by the generally low level of interest rates and the increase in consumer confidence. The most important volume of corporate lending transactions though continues to be in terms of debt restructuring. The revised legal and regulatory regime, adopted as part of the conditions imposed by the troika lenders, assisted considerably in the debt restructuring of approximately €13 billion6 in loans, with all major local banks focusing their efforts on converting ‘red' loans of major corporate lenders into ‘black', especially in the construction industry. The transaction documents for this corporate lending activity are for the most part standardised and the nature of the security required is, for the significant majority of cases, real estate mortgages together with fixed and floating charges, in the form of debentures and personal guarantees.

On the international corporate lending front, the Cyprus entities involved - customarily in their capacity as holding companies of groups with worldwide activities - often act as borrowers or guarantors, and in some cases they consequently also act as intra-group lenders. Third-party lenders in such finance transactions are typically major financial institutions originating from the jurisdiction where the underlying assets and activities of the borrower group lie, but there could also be other institutional lenders and private investors. The amount of monies lent on such transactions are often in the tens of millions of euros per transaction, but because in most cases there is no Cyprus banking institution involved and given also that there is no recording requirement for such transactions in Cyprus, the exact amount of this market is hard to identify. This kind of lending transaction can take a variety of forms, ranging from simple loan facilities to repo transactions under the Global Master Repurchase Agreement. They are almost always secured and the documentation used varies significantly; however, the governing law is typically either English law or the law of the jurisdiction where the underlying activities of the parties lie. In what perhaps could be said to be the consequence of de-offshorisation initiatives worldwide and especially in Russia, the trend again lately is for the refinancing or extension of lending facilities granted to existing borrower groups rather than for new corporate lending activities.


i Laws on enforcing mortgages granted as security

In light of its efforts to rescue and revive its economy, and as part of the conditions imposed by its troika lenders, Cyprus has recently passed a new foreclosure legislation framework,7 which allows for the speedy sale of collateral in bad loans, replacing the old legislation under which the repossession procedure could take up to 15 years. Legislation No. 142(I)/2014 amended the Immoveable Property (Transfer and Mortgage) Law of 1965 (the Law), by allowing a mortgagee to proceed with the sale of the mortgaged property without having the obligation to file a relevant application to the Director of the Land Registry, as it was the case prior to the amendment.8 Accordingly, if the mortgaged debt is overdue for a period of not less than 120 days,9 the mortgagee can serve a notice and a statement of account on the debtor and any other interested party informing them that the sale procedure of the mortgaged property has commenced and inviting them to pay off the debt within 30 days of the date of receipt of the notice. If the debtor fails to comply with the first notice, the mortgagee may serve a second notice on the debtor and any other interested party, informing them, that the mortgaged property will be sold at an auction. It is possible for the debtor or any other interested party, within 30 days of receipt of the second notice, to file an appeal to the relevant district court to set aside the notice.10

Bank of Cyprus, the island's largest lender, proceeded since the summer of 2016 with the foreclosure of a number of properties worth over €2.3 million, thus, signalling the first auctions under the new foreclosure legal framework. No residential properties were included in the first wave of auctions, and although a few properties were sold, in general little interest was shown in the Cyprus property auctions. Bank of Cyprus and other Cyprus banks are, nevertheless, expected to continue auctions as they rely heavily on the implementation of the foreclosure legislation because it lays the groundwork for large-scale loan restructurings and improves the banks' recovery prospects. The aforementioned legislation is complementary to the restructuring of the insolvency framework under legislation11 introduced in April 2014 on, inter alia, amendment of the corporate bankruptcy framework through the introduction of creditor protection by the court, the licensing of insolvency practitioners and the introduction of protections against foreclosure of primary residences.

ii Anti-money laundering and terrorist financing

Cyprus, as a full member of the European Union, implemented the EU Anti-Money Laundering Directives by passing the Prevention and Suppression of Money Laundering Law of 2007 (AML Law).12 The Advisory Authority for combating money laundering, a body established under the AML Law,13 released in mid-May 2017 a first draft of an amended bill for the implementation of the Fourth Anti-Money Laundering Directive14 (4AMLD), which will be finally amended by the Fifth Anti-Money Laundering Directive aimed at implementing a more strict regulation of virtual currency exchanges (after the Panama Papers fallout). Following a worldwide trend, the recommendations of the Financial Action Task Force (FATF) and the upcoming implementation of the 4AMLD, the regulators of banks, financial service providers, lawyers, accountants and other professional service providers, both on a national and supranational level, continue to impose increasing and rigorous compliance requirements for clients regarding boarding and any sort of movement of funds. This means that currently, in the sphere of corporate lending, any sort of inflow or outflow of funds from or to Cyprus financial institutions, and from or to any Cyprus entity in general, is under the utmost scrutiny with regard to the production of relevant supporting documents and information that identifies the source of funds, the beneficial owner's identity and the underlying commercial rationale of the transaction.

Under the Cyprus legal and regulatory framework, there is currently a requirement to produce supporting documents with regards to as little as a 10 per cent ownership, a threshold that is much more rigorous than the 25 per cent recommended by the FATF and applicable under the EU Directive on money laundering. While such regulations are admittedly a good step towards combating money laundering and financing of criminal activities, in practice they create a huge administrative burden in connection with, inter alia, corporate lending transactions and it can often be the case that having to fulfil such rigorous procedures delays sought time frames and otherwise hinders commercial objectives.


i Withholding tax

Under Cyprus tax legislation15 there are no withholding taxes on flow of funds from and to Cyprus in connection with corporate lending transactions, and there is no withholding tax on payments of interest from Cyprus. Withholding tax on interest paid to Cyprus lenders is governed by the various tax treaties entered into between Cyprus and the paying jurisdiction and thus varies. For interest earned by Cyprus corporations whose ordinary activities are not lending activities, a special contribution for defence tax applies on all interest income at the rate of 30 per cent.16 As regards back-to-back loans between corporate borrowers, the Cyprus Tax Authorities, taking into account the recent international tax developments, amended the current tax regime in connection with profit margins on loans between related parties. More specifically, as from 1 July 2017, all loans between Cyprus tax-resident companies and their related companies must be supported by a transfer pricing study, which must comply with the OECD principles.17 Any back-to-back finance transactions remaining in place after 1 July 2017 will also need to be supported by a transfer pricing study for the period from 1 July 2017.

ii Stamp duty

Cyprus stamp duty is levied on documents relating to assets located in Cyprus or matters or things taking place in Cyprus.18 This includes agreements on corporate lending transactions. Payment of stamp duty on documents does not affect their legal validity; however, any documents that are not stamped with the correct amount of paid duty cannot be adduced in evidence in court without payment of the duty and the appropriate penalty. The wording of the law indicates that the rate of stamp duty is determined by the aggregate value of the contract and is scaled up to a maximum cap of €20,000.19

A number of categories of documents are exempt from stamp duty, including documents relating to corporate reorganisations and ship mortgage deeds. Despite the fact that signatories are Cyprus companies, where the matter does not deal with Cyprus-situated property or other things or matters performed in Cyprus it should be exempted from stamp duty. As such, loan agreements, for instance, that are executed in Cyprus but are not utilised in Cyprus, and the monies are paid abroad, will not be subject to stamp duty. On the other hand, pledge of shares of a Cyprus company and mortgages of property of a Cyprus company will be subject to stamp duty. The relevant authority to make such a determination is the Stamp Duty Commissioner, of the Tax Department (formerly the Inland Revenue Department).

Stamp duty must be paid within 30 days from the date of execution of the relevant documents or, if they are executed abroad, within 30 days after they are received in Cyprus. If stamp duty is paid late, there is a surcharge of approximately 10 per cent, which doubles after six months but which cannot exceed €4,000.

iii Foreign Account Tax Compliance Act (FATCA)

The Republic of Cyprus and the United States signed on 2 December 2014 an intergovernmental agreement with regard to FATCA, pursuant to which all participating Cyprus financial institutions are required to report all FATCA-related information to the Tax Department in Cyprus. The Cyprus Minister of Finance issued a relevant decree in order to ensure the effective implementation of the said agreement.20 FATCA obligations require Cyprus financial institutions to identify financial accounts held by US residents or US citizens, or by entities that are organised in the US or controlled by one or more US persons and to report that information to the US Internal Revenue Service. Financial institutions in Cyprus now ask all clients, existing and new, including borrowers, to fill out self-certification forms and other additional documents in connection with FATCA provisions. Local financial institutions did not materially alter lending documentation in connection with FATCA, and even non-financing Cyprus entities acting as cross-border lenders only incorporate FATCA drafting solutions when relevance is identified early on in the due diligence process. Amendments to loan documentation aimed at FATCA compliance predominantly take the form of representations and warranties about the borrower being outside the scope of FATCA, but these can include relevant provisions for allocating the withholding tax risk in the event of non-compliance, such as a gross-up or indemnity provision if the borrower is obliged to make a FATCA withholding.

iv Common Reporting Standard (CRS)

In the context of further improving international tax compliance, Cyprus signed, on 29 October 2014, the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information, and is one of the early adopters of the new global Common Reporting Standard on exchange of tax information introduced by the Organisation for Economic Co-operation and Development. The mandatory rules introduced, known as the CRS, allow the tax authorities of implementing countries to exchange tax information and have immediate access to the tax information of any taxpayer citizen. Authorised credit institutions in Cyprus, as well as all other financial institutions, have already started, from 1 January 2016, undertaking the requisite due diligence and requesting information from account holders by way of self-certification to report to the Tax Department, which in turn will be in a position to provide any requested information to any relevant tax authority implementing the CRS. At this stage, decrees21 are being issued by the Minister of Finance in Cyprus to clarify the exact requirements for collecting, reviewing and processing information on client onboarding, due diligence and reporting. No significant changes have been made to loan documentation, particularly considering the fact that this is a very early stage in implementation and that such matters are mostly dealt with at the due diligence stage. Any CRS provisions in loan documentation may relate to representation regarding the tax status of borrowers and caveats from lenders in connection with their obligations under CRS, if any.

v Country-by-country (CbC) reporting

Cyprus signed the Multilateral Competent Authority Agreement for the automatic exchange of country-by-country report on 1 November 2016, while the Cyprus Minister of Finance issued a relevant decree, on 30 December of 2016, which provides for a mandatory country-by-country reporting requirement for multinational enterprise groups (MNEs) generating consolidated annual turnover exceeding €750 million. The Decree is in line with the relevant Directive 2016/881/EU22 and the recommendations of the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13. More specifically, Cypriot tax-resident entities that are part of a MNE group are required to submit their CbC report, disclosing data relating, inter alia, to the amount of their revenue, their profit before tax and the corporate taxes paid. This information will be exchanged by the Cyprus' Tax Authorities with the relevant tax authorities of the other Member States, when required.


i Security

Under Cyprus law, lenders can take security over practically any type of asset ranging from immoveable property, such as land and buildings, to tangible moveable property, such as machinery or financial instruments, and intangible moveable property, such as receivables and intellectual property rights. The type of security varies significantly and will depend on the type of asset and the commercial objective sought. Mortgage is the most common security for immoveable properties. With respect to moveable properties, the types of security are normally liens, pledges, fixed and floating-charge debentures, assignment of receivables and other security and quasi-security instruments.

Security over immoveable property, which is the primary method of securing finances for local corporate lending, is taken by way of mortgage for the benefit of the lender and is made pursuant to the Immoveable Property (Transfer and Mortgage) Law of 1965, which requires, inter alia, that the instrument creating the mortgage is deposited with the Land Registry in the district where the property is located.

Upon registration there can be no further transfer or disposition of any rights in the property except with the mortgagee's prior consent. Registration fees of one-thousandth of the amount secured are payable. Similarly, a mortgage over a vessel or any share in a vessel is registered with the Department of Merchant Shipping pursuant to the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law of 1963. Registration fees depend on the gross tonnage of the vessel.

Pledge of shares in Cyprus companies is customarily effected by a pledge agreement, or a ‘deed of pledge', which secures the contractually binding nature of the pledge against any potential absence of consideration. The most popular method of taking security in international financing transactions is probably the pledge of shares of the Cyprus holding company that holds the underlying assets. The instrument is customarily governed by Cyprus law, but nothing prohibits the parties from making an alternative choice of law - often the law that governs the remaining finance documents, provided that mandatory provision of Cyprus law will apply in connection with the pledge. Pursuant to the Cyprus Contracts Law,23 a pledge of shares is made against the certificates of the shares, and, for it to be valid and enforceable, it must be made in writing and must be signed by the pledgor in the presence of two witnesses, who must also sign. The law also sets certain perfection requirements for the pledge to be enforceable, namely the delivery of a notice of pledge accompanied by a certified copy of the deed of pledge to the company the shares of which are being pledged; the registration of a memorandum of pledge entered in the register of members of the company the shares of which are being pledged in respect of the pledged shares; and the issuance of a certificate by the secretary of the company the shares of which are being pledged confirming that a memorandum of pledge has been entered in the register of members of the company.24 Other than the aforementioned, there is no official registry for pledged shares of Cyprus companies. Under the regime of registration of charges pursuant to Section 90 of the Cyprus Companies Law, Cap 113, a pledge of shares of a Cyprus company that constitute assets of a Cyprus holding company is exempt from registration as a charge; however, practitioners tend, as a matter of caution, to proceed to file for registration and the Cyprus Registrar of Companies will permit such filings.

Where the pledge falls within the scope of the Financial Collateral Arrangements Law of 2004, the aforementioned perfection requirements are not necessary for enforcement.

Another popular security instrument is the debenture, namely a fixed and floating charge over all assets of the borrower or other obligor. Such instruments will customarily include a fixed charge over specific and identifiable assets of the chargor and a floating charge over a very wide range of described liquid assets, the nature, volume and form of which may change from time to time by operation of the business activities of the chargor, but which will crystallise at the point of default in accordance with the terms. The floating charge will generally apply to assets such as bank accounts, receivables and royalties, but may include any other form of property or right of the chargor, present or future. These types of security instruments are generally popular with local finance institutions, which have control over the receivables, bank accounts and assets and can easily enforce such a security. The aspect of the floating charge raises certain issues in terms of enforcement and thus the appointment of a receiver is normally provided in the terms of such instruments with specific authorities and duties being prescribed. The receiver will normally be authorised to take possession of the assets covered by the security and pay off the creditor; however, there are certain statutory25 and equitable duties that the receiver must satisfy, such as acting to obtain best price and acting fairly and in good faith, which impose great responsibility on the receiver. For this reason, prudent receivers will exercise the option under the law26 to ask the court for directions in exercising their duties, in which case the process of enforcement is further prolonged.

Equitable assignment of rights and receivables is another form of security instrument used. This is more popular in connection with asset financing and specifically ship financing involving the assignment of earnings under ship management contracts and insurances. Such assignments can be created by way of a floating charge as indicated above or by way of a separate security instrument. In terms of perfection, the most important mechanism for both enforcement and recognition against other creditors of the security instrument is to duly notify the assignment instrument to the payee.27

Under Section 90 of the Cyprus Companies Law, Cap 113, a charge over a Cyprus company's property should be registered with the Cyprus Registrar of Companies within 21 calendar days of the day the charge is created. In the event that the charge is not executed in Cyprus, the time limit of registration with the Cyprus Registrar of Companies is 21 days after the date on which a copy of the instrument creating the charge could, in due course of post and if despatched with due diligence, have been received in Cyprus. In practice, this period should not extend over 42 days. The obligation to register extends to any addenda or amendments to the original instrument, but this only seems to apply to the extent that specific elements of the charge change. The consequence of non-registration is that any such charge will be void against the liquidator or any creditor of the company. Given that a court order will be necessary for the Registrar to accept registration if the deadline is missed, when acting for the chargee it is customary practice that the transaction document contains an obligation on the chargor to register the charge within a few business days of execution. The process of registration entails that a relevant form is filed with the Cyprus Registrar of Companies outlining the details of the charge, namely Form HE24E, which must be submitted together with a stamped copy of the instrument creating the charge. The Registrar will accept copies certified by Cyprus attorneys. After the aforementioned process is finalised, the Cyprus Registrar of Companies will then provide the company with a certificate of registration of the charge as evidence that the charge has been properly registered. In addition to the above obligation, Cyprus companies have a legal obligation to maintain an internal up-to-date register of charges and mortgages at their registered office,28 which must, by law, be made available for inspection and can be inspected subject to certain reasonable conditions.29

ii Guarantees and other forms of credit support

Both personal and corporate guarantees are a standard means of establishing security under the terms of corporate lending transactions involving Cyprus parties. Personal guarantees are a more infrequent security instrument, used sometimes by local financial institutions where the borrower or its group has insufficient assets for security and, thus, a personal guarantee is sought from the ultimate beneficial owner. In the context of cross-border financing, corporate guarantees are a frequent phenomenon, often granted by the Cypriot holding company, in possession of all assets, against debt of the subsidiaries in various jurisdictions. Companies with underlying commercial benefit and if permitted under their constitutional documents, can freely provide such corporate guarantees provided no other restrictions exist by law, such as the prohibition of providing guarantees as means of financial assistance for the acquisition of own shares.30 A guarantee under Cyprus law is a contractual right on the beneficiary and no consent, filing or registration is required. Guarantees granted pursuant to Cyprus contract law must satisfy all preconditions for a contract to be duly constituted, including, subject to certain exemptions, the requirement of the existence of consideration. Because of the nature of the guarantee and lack of direct consideration, it is customary practice to enter into such guarantees as a deed, thus defeating the requirement of consideration, and utilising pre-1960 English law principles that are adopted and applicable as part of Cyprus law.31

Other quasi-security mechanisms are also customarily deployed, such as negative pledge, mandatory set-off, netting and others, but these are particular to the circumstances of the financing and normally take the form of covenants under the loan documents rather than as a stand-alone security.

iii Priorities and subordination

The priority of competing interests upon liquidation of a Cyprus company is ranked as follows:

  • a the overall costs of liquidation;
  • b the preferential debts (every local and government tax due, any unpaid wages and social security contributions due);
  • c the secured creditors;
  • d the unsecured ordinary creditors; and
  • e the deferred debts (such as dividends declared but not paid).

Any surplus will be distributed among the members of the company according to their rights.32

In relation to intercreditor issues, claims of each succeeding class rank equally among themselves and abate in equal proportions if the assets are insufficient to meet them fully. Priority between secured creditors of the same asset will be awarded to the first in time duly filing or recording the security, as applicable. Having said the above, it is possible for creditors to enter into subordination or other equivalent agreements between them, whereby they can contractually determine their priority in terms of the security interest over the same assets or debtor.


i Legal reservations

The rights of creditors and the enforceability of transaction documents under corporate lending arrangements may be subject to the limitations arising from the laws relating to bankruptcy, insolvency, liquidation, receivership, administration and reorganisation.

Under the Cyprus Companies Law, Cap. 113, rules for protection against fraudulent preference, any conveyance, charge or mortgage relating to property made or done by or against a company within six months prior to commencement of its winding up at a time when the company was insolvent would be deemed a fraudulent preference and shall be invalid.33 In addition, any conveyance of moveable or immoveable property, including a mortgage or charge made by any person, including legal persons, with the intent to stop or hinder payments to its creditor may be deemed void against the creditor by operation of the Fraudulent Transfer Avoidance Law, Cap. 62.

Any form of financing by Cyprus companies, whether by means of a loan guarantee, the provision of security or otherwise, deemed directly or indirectly as financial assistance for the purpose of or in connection with a purchase or subscription of shares in the company or its holding company, is prohibited under the Cyprus Companies Law, Cap 113.34 The prohibition will apply unless the action in question is exempted; for instance, where lending is part of the ordinary business of the company, or where, in the case of a private company that is not a subsidiary of a public company, the transaction is approved by a resolution passed by holders of at least 90 per cent of all issued voting capital in the company acting in general meeting (deploying what is commonly referred to as a ‘whitewash' mechanism).

Other restrictions on enforcement of security may exist in connection with relatively recent amendments of the Cyprus Companies Law, Cap.113,35 which were prompted by efforts to revive and restructure the economy. There is now the option for a company facing insolvency to be put under the short-term protection of the court, to protect it from its creditors and to facilitate its survival. The Law provides for a maximum statutory period of six months, in which some form of compromise with creditors can be reached. The process entails that the affairs of the company are assessed by an examiner, who ascertains whether or not the company is capable of being rescued. If a rescue is possible, the examiner must bring forward a rescue plan. During the protection period, the creditors may not pursue the remedies normally available to them against such a Cypriot debtor company. Similarly, proceedings may not be initiated against any guarantor of any company debt during the protection period.

ii Opinions practice

There is no requirement under Cyprus law for any legal opinion to be issued in connection with corporate lending transactions. Legal opinions are almost never required in connection with corporate lending of local financial institutions. In the significant majority of international corporate lending transactions where any of the obligors, whether borrower, guarantor, pledgor or chargor, is a Cyprus company, especially where a foreign financial institution is involved, a legal opinion will be required by the lenders for their comfort. In practice, the lender will engage local counsel, independent of the legal counsel of the obligor, to provide a legal opinion on the Cyprus entities involved. The opinions issued customarily include confirmation of capacity and authority of the obligor to enter into the transaction documents and perform its obligations thereunder. Other matters opined upon include the enforceability of the transaction documents in accordance with their terms, especially taking into account choice of law, arbitration and other conflict-of-laws provisions.

iii Choice of law and foreign awards

The choice of law other than Cyprus law as the governing law of the transaction documents of corporate lending transactions will be recognised in the Republic of Cyprus, and that law will be applied by the courts of the Republic of Cyprus if the transaction document or any claim thereunder comes under their jurisdiction upon proof, by expert evidence, of the relevant provisions of the said law. Application of the law chosen will be restricted in relation to matters where Cyprus law mandatorily applies, such as for, instance, where a charge is created over Cyprus immoveable property.

Where the parties contractually submit themselves for the settlement of disputes to a particular jurisdiction or by way of arbitration under the transaction documents, the Cyprus courts will generally respect and enforce such provisions.

A judgment obtained in a European Member State against a Cyprus company will be recognised and enforced in the Republic of Cyprus without re-examination of the merits of the case pursuant to the rules established by Regulation (EU) No. 1215/201236 (which replaced Regulation (EC) No. 44/2001) and Regulation 805/200437 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and a judgment obtained in any other foreign court may be enforced in the Republic of Cyprus under common law by bringing an action on the judgment. Similarly a final arbitration award rendered against a Cyprus company in arbitration proceedings in compliance with the provisions of the transaction document in a state that has ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, would be recognised and enforced in the Republic of Cyprus subject to the provisions of Law No. 84/79, which is the Cypriot law that ratified the 1958 New York Convention and made it an integral part of the law of Cyprus.


Trading of loans under Cyprus law is done by way of assignment or novation in conformity with the terms of the original transaction documents. Customarily the transaction documents will provide that the lender may freely assign its rights provided notification is given to the borrower. Borrowers are generally restricted in assigning any right or transferring any obligations under the loan or any security documents without the prior written consent of the lenders. For secured loans, trading matters may be somewhat more complicated, as security instruments may also need to be assigned or novated under their original terms and other perfection requirements such as relevant filings will need to be satisfied.

As part of efforts made to address the very high percentage of non-performing loans of local financial institutions, the Cyprus government, in November 2015, passed the Law Regulating the Activities of Companies Acquiring Credit Facilities, which stipulates how and in what instances companies can acquire credit facilities from Cyprus borrowers. The Law is directed predominantly at natural-person borrowers but it can also include small businesses that have received loans from licensed credit institutions with a total loan balance (including the loans granted to the connected persons) of up to €1 million. There are certain exemptions from this Law's applicability that ensure it only applies to local financing and does not extend to international lending transactions. The scope of the Law excludes borrowers with operations or investments outside the Republic of Cyprus, borrowings whose primary security, mortgage or charge on immoveable property is located outside the Republic of Cyprus, and those transactions governed by law other than Cyprus law. Where law other than Cyprus law applies, the persons allowed to acquire credit facilities are limited and these are briefly described as only Cyprus and other EU-licensed and authorised financial credit institutions and any other person acquiring authorisation from the Central Bank of Cyprus pursuant to this law. Where a transfer of a loan is made pursuant to the aforesaid foreign law, relevant notification requirements and other restrictions apply.


i Financial collateral laws

The Cyprus Financial Collateral Arrangements Law of 2004, which transposed Directive 2002/47/EC on financial collateral arrangements into Cyprus law, alleviates perfection requirements on enforceable security and greatly facilitates the creation, validity and enforceability of financial collateral as security in terms of corporate financing transactions. For instance, in terms of pledge of shares in Cyprus companies falling within the scope of the Law, appropriation of the said shares and setting off their value is possible without having to apply for a court order. The Law applies only to specific financial collateral, as thoroughly defined therein, which can include cash, financial instruments and credit claims, as such terms are further defined. To benefit from the Law, there are a number of qualifying criteria that must be met; for example, at least one of the parties must be a public authority, a central bank, a regulated financial institution or a clearing house. Because of the uncertainty as to whether a certain security falls within the scope of the Law - such as, for example, a floating charge - the beneficiary will, in practice, always seek to perform formalities and carry out registration.


Pursuant to data released by the Central Bank of Cyprus, the value of non-performing loans dropped by €176.3 million in January 2017 compared with December 2016, to €23.7 billion, the lowest since the end of 2014.38 Additionally, deposits in the Cypriot banking system increased by €332.1 million to €49.6 billion in March 2017, while loans increased by €132.8 million to €55 billion. With regard to local corporate lending transactions, there is still significant ground to cover in addressing the non-performing loans issue, despite the significant reform of the legal and regulatory framework on foreclosures and insolvency and the revised practices and regulation of the local banks including the practical implementation by banks of the reformed regulatory framework. For this reason, the banks are expected to continue to be reserved in their corporate lending activities, and will continue to focus their efforts on further restructurings. Having said that, given the continued stability and strengthening of the Cypriot economy, corporate lending has slowly but steadily been increasing and is set to increase further in future. Cyprus has an extremely well-developed framework to accommodate the use of Cyprus entities in secured international corporate lending transactions, offering, inter alia, legal clarity, reliability and transparency, and it is constantly improving and developing these features through the initiatives of professionals and government alike to match, if not exceed, international best practices.

1 This chapter was written and reviewed by lawyers in the corporate and commercial department of Kannava, Kitromilidou & Co LLC.

2 Cyprus Securities and Exchange Commission list of licensed investment firms as at 6 June 2017 (226 in total) - via the website of the Cyprus Securities and Exchange Commission.

3 Central Bank of Cyprus, ‘Monetary and Financial Statistics', April 2017.

4 Central Bank of Cyprus, ‘Publication of data on Non-Performing Facilities'. The Central Bank of Cyprus published data on ‘Aggregate Cyprus banking sector data (non-performing facilities data)' as at 31 January 2017 - showing the total non-performing facilities at 47 per cent.

5 Central Bank of Cyprus Bank Lending Survey January 2017.

6 Central Bank of Cyprus published data on ‘Aggregate Cyprus banking sector data (non-performing facilities data)' as at 31 January 2017.

7 Inter alia, amendments were made to the Immoveable Property (Transfer and Mortgage) Law of 1965, Law No. 9/1965; Immoveable Property (Tenure, Registration and Valuation) Law, Cap. 224; Central Bank of Cyprus Laws of 2002-2014, Law No. 138(I)/2002; Civil Procedure Law, Cap. 6 and to other legislation.

8 Part VIA, ‘Sale of mortgaged property by the mortgagee' of the Law.

9 Article 44B(1) of the Law.

10 Article 44C(3) of the Law specifies the possible grounds for appeal, namely: (1) the notice does not comply with the required conditions regarding form and content; (2) the notice was not duly served; (3) the notice was sent before the expiry of the deadline for the payment of the debt to the mortgagee (in less than 120 days) and (4) proceedings are pending before the court regarding the first notice that was sent.

11 The Insolvency of Natural Persons (Personal Repayment Schemes and Debt Relief Order) Law of 2015 as amended; Bankruptcy (Amending) Law of 2015; Companies (Amending) Law (No. 3) Law of 2015, regarding liquidation; Companies (Amending) Law (No. 2) Law of 2015, regarding a Protection Mechanism for Restructuring Corporate Debt (Examinership); Insolvency Practitioners Law of 2015, as amended.

12 The Prevention and Suppression of Money Laundering Law of 2007, Law No. 188(I)/2007.

13 Sections 56 and 57 of the AML Law.

14 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

15 The Income Tax Law of 2002, Law No. 118(I)/2002 as amended.

16 Section 3 of the Special Contribution for the Defence of the Republic Law of 2002, as amended.

17 OECD/G20 Base Erosion and Profit Shifting (BEPS) Package.

18 Section 4 of the Stamp Duty Law of 1963, as amended.

19 For transactions with a consideration up to €5,000 no stamp duty is payable; for transactions with a consideration in excess of €5,000 but not exceeding €170,000, stamp duty of €1.50 for every €1,000 or part thereof is payable; for transactions with a consideration in excess of €170,000, stamp duty of €2 for every €1,000 or part thereof is payable.

20 Regulatory Administrative Act 223/2016: FATCA Decree.

21 On 20 May 2016, pursuant to Section 6(16) of the Assessment and Collection of Taxes Law, the Minister of Finance issued an Administrative Decree relating to the application of the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information.

22 Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

23 Section 138(1)(d) of the Cyprus Contracts Law, Cap. 149, as amended.

24 Section 138(2) of the Cyprus Contracts Law, Cap. 149, as amended.

25 These obligations include the duty to notify the Registrar of Companies of the appointment within seven days pursuant to Section 97 of the Cyprus Companies Law, Cap. 113, as amended.

26 Section 337 of the Cyprus Companies Law, Cap. 113, as amended.

27 Dearly v. Hall [1828] 3 Russ 1, notification is necessary to establish priority.

28 Section 99 of the Cyprus Companies Law, Cap. 113, as amended.

29 Section 100 of the Cyprus Companies Law, Cap. 113, as amended.

30 Section 53(1) of the Cyprus Companies Law, Cap. 113, as amended.

31 Section 29(1)(c) of the Courts of Justice Law of 1960, as amended.

32 Section 300 of the Cyprus Companies Law, Cap. 113, as amended.

33 Section 301 of the Cyprus Companies Law, Cap. 113, as amended.

34 Section 53(1) of the Cyprus Companies Law, Cap. 113, as amended.

35 Laws No. 51(I)/2017, 33 (I)/2017, 17(I)/2017, 97(I)/2016, 90(I)/2016, 40(I)/2016, 120 (I)/2015, 89(I)/2015, 63(I)/2015 and 62(I) 2015.

36 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). Brussels Regulation (recast) with effect from 10 January 2015.

37 Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims.

38 Central Bank of Cyprus, ‘Aggregate Cyprus Banking Sector Data', with reference date 31 January 2017.