By: N. Pirilides & Associates LLC
Recognition of Foreign Insolvency Proceedings in Cyprus: Legal Framework and Recent Developments
In the past few decades, the increasing incidence of cross-border insolvencies reflected the global economic turbulence which unfortunately led to the failure of businesses. With Cyprus companies appearing as part of many corporate structures with cross-border dynamics, international elements may present themselves during the course of Cyprus insolvency proceedings or where Cypriot property is the subject matter of foreign proceedings. This article provides an overview of the Cypriot legal framework governing recognition in Cyprus of foreign insolvency proceedings.
The jurisdiction of the Cypriot courts in cross-border insolvency cases derives mainly from EU Regulation 2015/848 on insolvency proceedings (the “Insolvency Regulation”) and the principles developed under common law, with the latter applying in Cyprus under Section 29(1)(c) of the Courts Law 14/60. It should be pointed out at the outset that Cyprus has not enacted legislation adopting the UNCITRAL Model Law on Cross-Border Insolvency (1997).
1. The Insolvency Regulation:
Insolvency proceedings instigated in a Member State can be recognised in Cyprus through the Insolvency Regulation which applies in relation to the insolvency of any given debtor with its centre of main interests (“COMI”) in an EU Member State where both the insolvency proceedings and the debtor are of a type within the ambit of the Insolvency Regulation. In the English case of East-West Logistics LLP v Melars Group Ltd [2022] EWCA Civ 1419, the Court of Appeal considered the test for establishing the location of a debtor’s COMI for the purposes of the Insolvency Regulation. According to the leading judgment given in the aforesaid appeal, the correct approach to determining a debtor’s COMI was to start with the statutory presumption that a debtor’s COMI was in the place of its registered office, and then analyse whether the presumption had been displaced.
In a nutshell, the Insolvency Regulation provides rules for determining within the EU (1) the proper jurisdiction for a debtor’s insolvency proceedings, (2) the applicable law to be used in those proceedings, (3) the mandatory recognition of those proceedings in other EU Member States and (4) methods by which coordination and cooperation is to be, or may be, achieved within more than one Member State and for insolvent groups of companies.
2. The Common Law:
As aforesaid, common law is another route to recognition of foreign insolvency proceedings in Cyprus and its rules and principles apply, broadly, in every case which falls outside the ambit of the Insolvency Regulation.
With Cyprus being considered a common law jurisdiction, the availability of the route of common law recognition of foreign insolvency proceedings in Cyprus was first noted in the first-instance case of Eitan Erez v. Dr. Borris Bannai (Application No. 1535/2011, dated 01.02.2012) however, in that case, the Court decided that common law was not applicable.
Years later, our partner and head of our DR department Kyriakos Karatsis successfully represented the liquidator of a US company in Application No. 225/2023 before the District Court of Limassol for the recognition of the appointment of the liquidator by the Cypriot Courts and the extension of his powers to take possession of the company’s assets within the Cyprus jurisdiction. This case is considered to be a milestone for cross-border insolvency law in Cyprus since it is the very first time that a Cypriot Court followed and adopted the principles developed under common law (since in this case the EU Regulation 2015/848 on insolvency proceedings was not applicable and Cyprus has not enacted legislation adopting the UNCITRAL Model Law on Cross-Border Insolvency (1997)) and more specifically the principle of the so-called “modified universalism”.
Cyprus frequently features in corporate structures with cross-border dynamics, often giving rise to international elements in insolvency proceedings. This is particularly evident where Cypriot property is involved in foreign proceedings or where foreign insolvency proceedings have implications in Cyprus.
The above mentioned landmark decision set a significant precedent by recognising common law as an alternative route for the recognition of foreign insolvency proceedings in Cyprus. This applies in all cases falling outside the scope of the EU Insolvency Regulation, broadening the framework for international cooperation in insolvency matters.
At N. Pirilides & Associates LLC, we possess extensive experience in handling in dealing with cross-border insolvency cases with Cyprus ramifications. For further information or assistance, please contact us at [email protected].
