Bankruptcy is the procedure declared by a physical person, legally referred to as the debtor, who seeks to obtain relief from debts he/she is unable to pay. Such relief is accomplished either through a discharge of the debt or through a restructuring of the debt, while all of the individuals’ available assets are used for the indemnification of all creditors.
The national legislation:
In the Republic of Cyprus, the Bankruptcy of a debtor is governed and regulated by the Bankruptcy Law, Cap. 5 and by the Bankruptcy Rules, Cap. 6.
Specifically, the Bankruptcy Law, Cap 5, in section 3(2) in addition to relevant Cypriot jurisprudence state that Cypriot Courts are competent to pronounce bankruptcy of a physical person in the following cases:
- (I) For debtors who ordinarily reside in the Republic of Cyprus;
- (ii) For debtors operating their business activities personally or through an agent in the Republic of Cyprus;
- (iii) For debtors who are members of a firm and/or partnership operating a business in the Republic of Cyprus.
Conditions of the Bankruptcy Procedure:
Section 3(1) of the same Law explicitly describes the conditions regarding the commencement of the bankruptcy procedure, according to which a debtor commits an act of bankruptcy in the following cases:
- (I) The debtor transfers or pledges his property to any person in favor of his creditors, on the territory of the Republic of Cyprus or elsewhere;
- (ii) The debtor transfers or pledges his property or any part thereof in the Republic of Cyprus or elsewhere, or creates a surcharge upon it which, under the provisions of the aforementioned Law or any other Law, would be considered to be void as a fraudulent preference if the debtor was declared bankrupt;
- (iii) The debtor commits one of the following actions, with the intent to annul or delay payments to any of his creditors:
- (a) Flees or plans to flee from the Republic Cyprus, or remains abroad if already outside the territory of the Republic of Cyprus;
- (b) Abandons his domicile or is absent in any other way;
- (c) Remains indefinitely within his domicile.
- (iv) The debtor files to a Cypriot Court a declaration of inability to pay his debts or submits an application for self-bankruptcy;
- (v) The debtor is served a notice of bankruptcy, even though he had previously received a final judgment or payment order of any amount against his debtors, and the notice was received during the legal time period of the execution of such judgment or payment order;
- (vi) The debtor neglects to proceed to payment or settlement or arrangement of payment of the debts incurred within the time period granted by a court order;
- (vii) The debtors concedes to his creditors his inability to execute his obligations towards them or delays payment of his debts towards them.
According section 5 of Bankruptcy Law, Cap.5, a creditor is eligible to file a bankruptcy petition provided that the alleged act of bankruptcy had occurred at least three (3) months to the submission of such petition, while the total debt due to the creditor must correspond to a minimum amount of 854 Euros.
On the other hand, in order for a self bankruptcy petition to be valid, the same Law in section8 states that the total amount of debts must exceed the sum of 8.540 Euros.
The Bankruptcy Procedure:
A bankruptcy procedure begins by the submission of a written bankruptcy petition to the court, which may be filed either by the debtor himself for self bankruptcy, or by one of the debtors’ creditors. Upon receipt of such petition, the acceptance or dismissal thereof depends upon the discretion of the competent Court. For the approval, evidential support of the existence of a given debt by the debtor to the creditor must be provided, while it is crucial to establish the commitment of an act of bankruptcy. Upon acceptance of the petition, a Receiving Order against the eligible property or assets of the debtor shall be issued, while in the event the latter is unable to proceed to an arrangement for settlement of such debt, he shall be declared bankrupt by the competent Judge. The property or assets withheld for the bankruptcy procedure may only be any possession of the debtor which he had already possessed at the outset of bankruptcy and/or obtained between the beginning of that time period until his discharge or the ending of the proceeding. According to section 42 of the Bankruptcy Law, Cap.5, any property or assets which may be held on trust for a third party, or is exempt from distribution under any applicable legislation in vigor in the Republic of Cyprus cannot be part of the procedure.
Once the eligible property or assets for the procedure are established, such property shall be held in custody of the Official Receiver who shall maintain control of the debtors’ finances until the appointment of a trustee in bankruptcy who may eventually proceed to the distribution of the debtors assets among all relevant creditors. The role of the appointed trustee could either be maintained by the Official Receiver or one of the creditors may assume such obligation.
Upon conclusion of the bankruptcy procedure, section 27A of the Bankruptcy Law, Cap.5 grants he debtor the right to apply to the Court for acquittal. The Court shall then examine the official report produced and delivered by the Official Receiver and the debtors’ conduct during the entire procedure, and may grant or refuse such petition.
The information exposed in the present article does not under any circumstances constitute legal advice. For further information on the subject, please contact Arsen Theofanidis LLC and one of our legal advisors shall be glad to assist you.
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Arsen Theofanidis LLC