CATEGORY: CYPRUS LEGAL SYSTEM
The position under Cyprus law with regards to the registration of an encumbrance over shares in a Cyprus company has recently been clarified following an opinion provided by the Attorney-General of the Republic of Cyprus; more explicitly, in accordance with the contents of the announcements dated 08/01/2019 and 15/03/2019, (which are available online under the ‘News’ section on the official webpage of the Department of the Registrar of Companies and Official Receiver of the Republic of Cyprus) it has been clarified that the procedure with regards to the registration of an encumbrance pursuant to s.90 of the Companies law, Cap. 113 (hereinafter “Cap. 113”) does not apply to encumbrances concerning the pledge of share certificates of companies registered in Cyprus, or any other encumbrances emanating therefrom. In other words, any such encumbrance concerning shares of companies registered in Cyprus is not capable of registration in the Register of Encumbrances kept at the Department of the Registrar of Companies and Official Receiver of the Republic of Cyprus. On the contrary, an encumbrance over shares of a foreign company is capable of registration in the said register pursuant to the provisions of s.90 of Cap. 113.
Subject to the abovementioned clarification with regards to an encumbrance over shares in a company registered in Cyprus, pursuant to s.90 of Cap. 113, in order for any encumbrance to be valid as against any liquidator and/or any creditor of the company in question, such encumbrance has to registered following the procedure envisaged pursuant to the provisions of s.90(1A) of Cap. 113, in the relevant Register of Encumbrances kept at the Department of the Registrar of Companies and Official Receiver of the Republic of Cyprus. In the context of a pledge over shares, having regard to the abovementioned clarification, the procedure envisaged under s.90 of Cap. 113 only applies to a pledge over shares of a foreign company.
In such a case, it is worth noting that Cap. 113, and in particular s.91 thereof imposes upon the company a duty to deliver to the Registrar of Companies for the purpose of registration, the details of any encumbrance performed by the company and which requires registration on the basis of the procedure envisaged under s.90 outlined hereinabove. In the event of a pledge on shares of a foreign company, within twenty one days from the date such encumbrance came into existence, the company must provide the Registrar of Companies for the purposes of registration, details of the encumbrance, the duly certified instrument evidencing such encumbrance, the date the encumbrance came into effect, the amount secured by the encumbrance, details of the encumbered property and details of the persons for whose benefit the encumbrance shall be registered. Upon such registration, the Registrar of Companies shall proceed to issue a certificate of registration of encumbrance stating the amount secured by such encumbrance in accordance with s.93(2), and the said certificate shall constitute conclusive proof that the registration of the encumbrance was made in compliance with the provisions of Cap. 113.
A copy of any instrument evidencing the existence of such an encumbrance requiring registration must be kept at the registered office of the Company in accordance with the provisions of s.98 of Cap. 113. In addition the Company must keep at its registered office a register of encumbrances on which all encumbrances specifically affecting the assets of the company and all floating charges on the business or any property of the company shall be recorded providing a brief description of the property that is subject to the encumbrance, the encumbrance amount and the names of the persons for the benefit of whom the encumbrance was registered (s.99(1) of Cap. 113). The register of encumbrances kept by the company should be open for inspection during normal business hours by any creditor or member of the company free of charge, as well as by any person upon payment of a nominal fee determined by the Company pursuant to the stipulations of s.100(1) of Cap. 113.
On the other hand, if the encumbrance in question concerns a pledge over shares in a company registered in Cyprus, recourse must be had to s.138 of the Contracts Law, Cap. 149, pursuant to which any pledge in respect of share certificates as security for the payment of a debt or fulfilment of an obligation is only valid and enforceable provided that the pledge agreement is made in writing and signed by the pledgor in the presence of two witnesses signing the same. Going further, the validity of such a share pledge shall rest on the fulfilment of the following conditions, namely that (a) the pledgee sends to the company a notice for the creation of the pledge along with a certified copy of the pledge agreement, (b) the Company registers such pledge to the Register of Shareholders as against the shares in which such notice relates and (c) the Company delivers to the pledgee a certificate evidencing the registration of the pledge in accordance with the foregoing.
Author: MARIOS CHRISTODOULOU