• Maria Kyriakou, Attorney at law
    Partner at Andreas Neocleous & Co LLC

Does Cyprus law include a special regime for individual’s Bankruptcy?

Personal insolvency in Cyprus is governed by the Bankruptcy Law, Cap 5 (“Bankruptcy Law”), and the Bankruptcy Rules, which are found in the Subsidiary Legislation. The Bankruptcy Law is based on the UK legislation of 1914 with some amendments through the years, the most recent having taken place in 2008.

What is the scope of the Law?

The Bankruptcy Law deals with an individual who is unable to pay his debts (“the debtor”) so as to:

(a) distribute the debtor’s property among his creditors and

(b) give to the debtor a new start in life, free from any claims from his creditors and court actions against him for repayment of his debts if he has acted honestly and is not guilty of any serious misconduct.

Who can be adjudicated bankrupt?

The definition of a debtor given in section 3(2) of the Bankruptcy Law, Cap 5, gives jurisdiction to the courts to adjudicate bankrupt any person living, working or doing business in Cyprus, or having a residence in Cyprus. It includes a member of a firm which carries on or carried on business in Cyprus.

Initiating bankruptcy proceedings

Bankruptcy may be initiated by a creditor or by the debtor himself, by the presentation to the court of a petition to make the debtor bankrupt. Insolvency alone is not a sufficient ground for bankruptcy proceedings. For a creditor to present a petition the following requirements must be fulfilled (Cap 5, s 5).

  • The debtor must have committed an act of bankruptcy as defined in the Bankruptcy Law. Acts of bankruptcy include transferring or pledging property to any person in favour of the debtor’s creditors; fraudulently disposing of property; and avoiding contact with creditors in order to delay or avoid paying them. However, the most common act of bankruptcy is failure to comply with a bankruptcy notice issued by a creditor, informing the debtor that bankruptcy proceedings will be commenced if he fails to pay his debt within a specified time.
  • The debt is a liquidated sum, payable either immediately or at a specified time.
  • The debt due to the petitioning creditor or creditors must be more than €854 in total.
  • The debtor is a resident of Cyprus or lived, worked or carried on business in Cyprus within the year preceding the filing of the petition.
  • The petition must be presented no later than three months after the act of bankruptcy. A debtor may present his own bankruptcy petition only if his aggregate debts are in excess of €8,543.

Having heard the petition and assessed the evidence, the court will either dismiss it or issue a receiving order, an interim order preventing disposal of the debtor’s assets. The receiving order vests the debtor’s property in the Official Receiver, an officer of the court, as trustee who takes possession of the property to realise and distribute amongst its creditors. All legal actions against the debtor are stayed once a receiving order has been made. This order (the receiving order) does not make the debtor bankrupt; the property still remains his, but he has no possession and control as it vests with the Official Receiver. The Receiving Order is published in the Official Gazette and in two local newspapers; and all subsequent main orders and proceedings are published in the same way. The debtor is required to provide the Official Receiver with a statement of affairs, giving details of his assets and liabilities, including a list of his creditors showing their names, addresses and the amounts due to each one. This is to be done within three days of the receiving order, if the petition was filed by the debtor, or seven days if the petition was filed by a creditor. The Official Receiver calls for a general meeting of creditors to be held within 14 days of the receiving order to appoint a trustee in bankruptcy and to give the debtor the opportunity to propose a compromise with his creditors.

How is the Official Receiver and trustee in Bankruptcy appointed?

At the first meeting of creditors the creditors may appoint an appropriate person other than the Official Receiver to act as trustee in bankruptcy (“the trustee”). The law does not require the trustee to be a member of any professional body but he is required to give security to the court for the estimated value of assets under his control. The trustee’s duties are to realise the assets and to distribute the available funds in his hands to creditors. If no appointment is made by the creditors, the Official Receiver generally continues in office as trustee, though he may apply to the court for the appointment of an outside trustee.The trustee’s duties are limited to realisation of the assets, agreement of claims and distribution of funds. Responsibility for investigation of the debtor’s conduct remains with the Official Receiver, who also has oversight of the actions of the trustee. The creditors may also elect a committee of inspection of between three and five persons to assist and supervise the trustee. Generally creditors’ rights are assigned to the trustee, and they cannot take separate actions except with the consent of the trustee.

How is the Debtor’s property defined?

Debtor’spropertywhichistovestinthetrusteeisdeterminedonthedateofthecommencement of the bankruptcy. This is not the date of adjudication, but the date of the act of bankruptcy on which the petition is based (Bankruptcy Law section 41). In addition property acquired up to the date the debtor is discharged from bankruptcy is caught by the bankruptcy. Various transactions effected by the debtor may be set aside by the trustee even though they took place prior to commencement of the bankruptcy. These include transfers of property to a third party for less than full consideration and fraudulent preferences, if they occur at a time that the debtor was unable to pay his debts in full, or the debtor transfers property to one of his creditors with a view to giving such a creditor a preference over the other creditors. If the transfer took place within three months before the presentation of the bankruptcy petition against the debtor, the trustee in bankruptcy may avoid the transaction and claim the property for the benefit of the creditors generally, without the need to prove fraud.

Is the Bankrupt’s income distributed amongst its creditors?

If the bankrupt has an income through employment or otherwise, the trustee in bankruptcy may also apply to the court for an order that part of the bankrupt’s income (by way of instalments) be paid to the trustee against his debts for distribution to his creditors.

Which property of the Debtor is not distributed amongst his Creditors?

The debtor is entitled to retain certain assets, mainly personal necessities and household items, supplies and tools of his trade or profession. Property held by him on trust is also excluded from the bankruptcy. (Bankruptcy Law, section 42).

What are the Disqualifications of Bankrupts?

Bankrupts are disqualified from holding elected public office and any office holder who is adjudged bankrupt must vacate his office. The disqualification continues until the bankrupt obtains his discharge together with a certificate that the bankruptcy was caused by misfortune and did not involve misconduct on the part of the debtor. An undischarged bankrupt may not obtain credit without first informing the lender of his status, nor may he carry on trade in any name other than that under which he was adjudged bankrupt.

Compromise or scheme of arrangement

During the first meeting of creditors the creditors consider any proposal for a composition or scheme of arrangement that the debtor may make. If the debtor proposes an arrangement with his or her creditors, a written proposal must be submitted to the Official Receiver, setting out the terms of the proposed arrangement, together with details of any proposed guarantors or any security offered. On receipt of the proposal, the Official Receiver circulates it to creditors, together with his or her comments on the proposal and notice of the meeting to consider the proposal. The debtor must be present at this meeting and must provide all the requested information essential for the purposes of convening the meeting (Bankruptcy Law, section 23). If the debtor’s proposal is approved by a majority in number representing 75 per cent in value of the creditors who have proved their debts, it is deemed to have been accepted by the creditors and, subject to the court’s approval, is binding on all creditors. If no arrangement is proposed by the debtor, or if the requisite majorities are not achieved, the court will adjudge the debtor bankrupt and his or her property will become available for distribution among the creditors (Bankruptcy Law, section 19). In either event, a trustee is appointed to execute the arrangement or compromise or to administer the estate and distribute dividends when the assets are realised.

Where do creditors rank in bankruptcy procedures?

The proceeds of realisation of the assets are applied in the following order of priority:

  • First, the costs of the bankruptcy, comprising the trustee’s fees, disbursements and expenses, together with the petitioning creditor’s legal costs;
  • Second, the preferential debts, comprising up to one year’s central and local government taxes, sums due to employees and unpaid rent for up to four months preceding the date of the receiving order;
  • Third, the unsecured creditors and the unsecured balance of any secured debt, where the value of the security is insufficient to cover the full amount owed.

Within each category of claim, creditors rank equally and abate in equal proportions should there be insufficient funds to pay them in full.

What is the procedure to be followed an “Out of Court Settlement”?

Informal compromise with debtors may be possible and the creditors will give waivers of debts together with their written consent to the debtor and to the Official Receiver to discharge him from bankruptcy, under section 31 of the Bankruptcy Law.

Do the debts bear interest after the delivery of the petition?

Interest ceases to accrue after presentation of the petition for bankruptcy.

When can the debtor be discharged or his adjudication is annulled?

The debtor may apply to the court for his discharge after the conclusion of the public examination or after the court has decided that no public examination is necessary. (The public examination is an examination of the debtor by the court undertaken in order to ensure that all relevant assets and information have been disclosed). In order to consider the application for discharge the court will obtain a report from the Official Receiver on the debtor’s conduct and affairs. The court may discharge the debtor, either absolutely or subject to conditions regarding after-acquired property or income, refuse the discharge or suspend it for such time as it considers appropriate. Absolute discharge releases the bankrupt from all provable debts and liabilities, but not from a debt owed from penalties arising from criminal offences. Where in the opinion of the court a debtor ought not to have been adjudged bankrupt, or where it is proved to the satisfaction of the court that the debts of the bankrupt have been paid in full, the court may annul the adjudication of bankruptcy (Bankruptcy Law section 31). If a debtor has not committed any offences in relation to his bankruptcy he may obtain his discharge once four years have elapsed after his adjudication by publishing in a local newspaper and in the Gazette the notification required by law: if no creditor files an objection the Official Receiver publishes a notification of discharge (Bankruptcy Law section 27A).

Are the guarantors discharged?

Bankruptcy of a debtor does not discharge any guarantees of his debts. The guarantors remain liable until full payment of the guaranteed debt.




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