The Law

The Open-Ended Undertakings for Collective Investment Law of 2012 (L.78(I)/2012) (the “Law”) regulates the operation and supervision of open-ended undertakings for collective investment in transferrable securities (“UCITS”) in Cyprus.

The Law implements into Cyprus law:

–          EU Directive 2009/65/EC, on the coordination of laws, regulations and administrative provisions relating to UCITS and;

–          Articles 11 and 13 of the EU Directive 2010/78/EC, as regards the authority of the European Banking Authority, the European Insurance and Occupation Pensions Authority and the European Securities and Markets Authority.

In addition, the Law implements:

–          Commission Regulation 583/2010, as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website and;

–          Commission Regulation 584/2010, as regards the form and content of the standard notification letter and UCITS attestation, the use of electronic communication between competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities

Definition of a UCITS Fund

UCITS fund is defined as an undertaking:

–          Whose sole purpose is the collective investment of capital raised from the public in transferable securities and/or other liquid financial instruments, as included in section 40 (1) of the Law and as listed below (Investment Policy of UCITS).

–          Operates on the principle of risk spreading.

–          Which its units can be redeemed or repurchased at the request of the investor, directly or indirectly, out of the undertaking’s assets.

The following are not regarded as UCITS, pursuant to the Law:

–          Closed ended undertakings for collective investment.

–          An undertaking for collective investment which raises capital without promoting the sale of their units to the public within the European Union or any part of it.

–          An undertaking for collective investment, the units of which may only be sold to the public of third countries, pursuant to the terms of their constitutional documents.

–          An undertaking for collective investment, whose investment and borrowing policy, as prepared in accordance with the law of their home member state, does not fulfil the requirements of Chapter VII (obligations concerning the investment policies of UCITS) and Article 83 (borrowing requirements) of Directive 2009/65/EC.

Legal Form

UCITS may take the form a Common Fund or a Variable Capital Investment Company (“VCIC”).

–          A Common Fund is a contractual vehicle that does not have a legal personality and is represented through the management company, who acts on behalf of the unitholders and it exercises all rights deriving from the assets in the Common Fund.

–          The VCIC is a corporate vehicle, that is incorporated in accordance with Cyprus Corporate Law (Chapter 113) as a limited liability company, and it could be internally or externally managed.

Investment Policy of UCITS

UCITS may invest their funds in any of the following:

–          Transferable securities and money market instruments that are admitted to trading or are the object of trading on a regulated market in the Republic or another member state of the EU, which is defined as a “a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third‑party buying and selling interests in financial instruments – in the system and in accordance with its nondiscretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly”.

–          Transferable securities and money market instruments that are the object of trading on another regulated market of a member state, which operates regularly and is recognised and open to the public.

–          Transferable securities and money market instruments that are admitted to trading or are the object of trading on a regulated market in a third country, that operates regularly and its open to the public.

–          Recently issued transferable securities on the condition that they will be admitted into trading within one year from the date of issue.

–          Units of authorised UCITS or another collective undertaking, which are subject to prudential supervision and comply with specific requirements as included in the Law (Section 40.1.e of the Law)

–          Deposits to credit institutions, that are payable on demand or that provide the entitled of withdrawal within 12 months.

–          Financial derivative instruments that are the object of trading on a regulated market or over the counter (“OTC”) derivatives, provided that the underlying of such derivative consists of indices, interest rates, foreign exchange or currencies; the counterparties are institutions subject to prudential supervision and belong to categories that have been approved by Cyprus Securities and Exchange Commission and; the OTC derivatives are subject to daily valuations and can be sold, liquidated or cancelled by an offsetting transaction at any time and at fair price.

–          Money market instruments, except those trading on a regulated market, whose issuer is subject to regulations for the protection of investors and their funds.

The Right to be Forgotten or Right to Erasure, is basically the right given to individuals to ask organisations to delete, block or cease the processing of their personal data.

Even though the Right to be Forgotten became well-known and thoroughly discussed in the human rights field after its insertion in Article 17 of the General Data Protection Regulation (GDPR), it initially appeared in Article 12 (b) of the Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

The Google Case

The leading case on the matter is C-131/12 Google Spain SL and Google Inc. v Agencia Española de Protección de Datos (AEPD) and Mario Costeja González (13/05/2014), usually referred to as “the Google Case”. The decision on the Google Case gained publicity after the adoption of the GDPR in 2016, even though the main legal ground on which the claim was founded, was Article 12 of Directive 95/46/EC, since the case preceded the adoption and the enforcement of the GDPR.

In 1998 a Spanish newspaper published two announcements in its printed edition regarding the forced sale of properties arising from social security debts, in order to attract as many bidders as possible. At a later stage, that specific newspaper edition became available on the web. One of the properties contained in the announcements belonged to Mario Costeja González, whose name was included in the announcements. In 2009, Costeja contacted the newspaper and complained because when his full name was entered in Google’s search engine, a link to the announcements was appearing. He requested the erasure of his personal data, arguing that the forced sale had been concluded years ago and was no longer relevant. He then conducted Google Spain to request the removal of the links to the newspaper’s announcements. When Google Spain refused to do so, Gonzalez filed a complaint in the Spanish Data Protection Agency, which finally called on Google Spain and Google Inc. to remove the links to the announcements and make access to the data therein impossible.

When the case reached the National High Court of Spain due to actions brought by Google, the national judge stayed the proceedings and raised a number of questions to ECJ regarding the interpretation of Directive 95/46/EC.

The European Court of Justice (ECJ) ruled that individuals have the right to request from commercial search firms which profit from the gathering of personal data, such as Google, to erase and remove links and virtual paths to their private information and personal data. The reason for this decision is that the commercial entity behind a search engine is also responsible for the processing of personal data which appear in other websites, since it provides immediate access to those websites.

The Court concluded that the right to privacy supersedes the economic interests of commercial firms and sometimes, it even outweighs the public’s right to access information. In general, the importance of the Google Case lies on the massive control given to individuals over their personal data and their use on the internet.

The Right to be Forgotten under the GDPR

The rapid technological developments and the establishment of the Internet as an integral part of the personal and professional life of individuals have caused the uncontrolled dissemination and processing of personal data. This situation highlighted the inadequacy of the current legal framework regarding the safeguarding of the circulation of personal data and the need to establish a stronger set of rules.

Due to the abovementioned ever-growing need, the Right to be Forgotten is expressly stated and established within one of the most over-analysed legal instruments of our days, the GDPR.

The specific circumstances under which the right to be forgotten applies, are found in Article 17 of the GDPR. More specifically, an individual is entitled to request the erasure of their personal data if:

1. The personal data are no longer necessary in relation to the purposes for which they were collected or otherwise processed.
2. The data subject withdraws consent on which the processing is based and where there is no other legal ground for the processing.
3. The data subject objects to the processing and there are no overriding legitimate grounds for the processing.
4. The personal data have been unlawfully processed.
5. The personal data have to be erased for compliance with a legal obligation in Union or Member State law to which the controller is subject.
6. The personal data have been collected in relation to the offer of information society services.

Nevertheless, the same Article provides for instances where personal data might not be erased despite the request of the data subject:

1. For data used to exercise the right of freedom of expression and information.
2. For data used to comply with a legal ruling or obligation.
3. For data used to serve the public interest.
4. For data used during an organization’s official authority.
5. For data being processed for public health purposes.
6. For data being processed to perform necessary preventative or occupational medicine.
7. For data that represents important information that serves the public interest, scientific research, historical research, or statistical purposes and where erasure of the data would likely to impair or halt progress towards the achievement that was the goal of the processing.
8. For data is used for the establishment of a legal defence or in the exercise of other legal claims.

Final Remarks

The essence in the design of the GDPR, is the balancing of two contradictive targets: The preservation of the integrity of fundamental right to the protection of personal data and the eradication of obstacles to the free movement of data. The Right to be Forgotten, as a part of the GDPR, seems to follow the general essence of the Regulation, as Europeans have been introduced to a right that is powerful, but not absolute.

If we assume that there is an informal “importance hierarchy” of rights, the Right to be Forgotten is one that is continuously rising. Although it will never be qualified as an absolute right, the Right to be Forgotten has been able to obtain unexpected magnitude and to gain equal significance as the Right to Information.

Few years after the approval by the Council of Ministers of the draft law “On the development and maintenance of a registry of social enterprises” and its subsequent submission to the competent committee of the House of Representatives under the name “The Social Enterprises Law of 2020”, the long-outstanding proposed bill has passed into the much-awaited law and published to the official gazette of the Republic of Cyprus on 23/12/2020 (“the Social Enterprises Law”).

Prior to outlining the framework reflected in the Social Enterprises Law, it would be an oversight not to refer, even briefly, to the origin of the Social Enterprises Law.

Origin of Social Enterprises Law

As one might expect, the Social Enterprises Law derives its origin from a European action planning and in particular the social business initiative (“SBI”), which was communicated by the Commission to, amongst others, the European Parliament and the Council, aiming in promoting a highly competitive social market economy and innovation, with a view to develop and establish territorial cohesion, sustainable jobs, welcome new initiatives, protect the environment and fight poverty and social exclusion (“the Communication”).

The main objective of a social enterprise, as an operator and dominant element of the social economy, is to have a social impact rather than solely generate and distribute profit to its shareholders. The profits of a social enterprise are used primarily to pursue and achieve goals of social nature and to underpin the social foundations rather than augment the investment and wealth of the shareholder. The management of a social enterprise, whilst being carried out in an open and socially and environmentally responsible and conscious manner, must, in this context, encompass the employees, consumers and all stakeholders that are affected from the commercial activities of the enterprise.

Deriving from the rules of the Treaty on the functioning of the European Union and the case-law of the Court of Justice of the European Union, the term “social enterprise” used by the Commission, embraces the following types of businesses[1]:

1. Those for which the social or societal objective of the “common good” is the reason for the commercial activity, often in the form of a high level of social innovation,
2. those where profits are mainly reinvested with a view to achieving this social objective,
3. and where the method of organisation or ownership system reflects their mission, using democratic or participatory principles or focusing on social justice.

Thus, by way of further elaboration and explanation, the term, as articulated by the European Commission, embraces:

(i)                  businesses providing social services and/or goods and services to vulnerable persons (access to housing, health care, assistance for elderly or disabled persons, inclusion of vulnerable groups, child-care, access to employment and training, dependency management, etc.); and/or

(ii)                businesses with a method of production of goods or services with a social objective (social and professional integration via access to employment for people disadvantaged in particular by insufficient qualifications or social or professional problems leading to exclusion and marginalisation) but whose activity may be outside the realm of the provision of social goods or services.

Examples of Social Enterprises

Reference to some examples of social enterprises, would provide the reader with a better understanding of the notion of the “social enterprise”, as outlined in the European Commission’s Communication:

• In Italy, a medical centre provides high-level specialised assistance, including cultural mediation, particularly in areas poorly served by public services, with a particular emphasis on people in fragile socio-economic situations (such as immigrants).
• In Romania, a company with 5 members of staff and 5 volunteers has been working to provide cultural services in the Romanian language to blind people by adapting media (especially audio books and adapted films) for an estimated 90 000 people.
• In France, a business launched an innovative concept of water-free car washing services, using biodegradable products and employing unqualified or marginalised staff in order to reintegrate them in the labour market.
• In Hungary, a foundation set up a restaurant employing disabled staff (40 employees) and provided training and childcare to ensure the transition to stable employment.
• In the Netherlands, a company teaches reading using innovative digital tools and a method based on play. This method is particularly suitable for hyperactive or autistic children but can also be used for illiterate people and immigrants.
• In Poland, a social cooperative comprising two associations employs long-term unemployed and disabled staff and provides a variety of services: catering and food services, small construction and handicraft jobs and employability training for disadvantaged people.

Cyprus Legal Framework on Social Enterprises

Until very recently, no definition of the term “social enterprise” could be found in either the company law or in any other legislative instrument of Cyprus law and, as a matter of fact, there has been no specific legislative framework governing the establishment, incorporation, constitution, synthesis or operations of social enterprises.

A body corporate having or combining as part of its operations or mission, elements of social nature or texture, would normally take the form either of a company limited by guarantee (incorporated under the Companies Law, Cap. 113), or of an association or foundation under the Associations and Foundations and other Ancillary Matters Law of 2017 (Law 104(I)/2017), or of a cooperative society under the Cooperative Societies Law of 1985 (Law 22/1985).

The eventual incorporation of the Social Enterprises Law in the legislative arsenal of Cyprus after few years of legislative drafting and discussions between the social partners, will definitely serve to the further development and promotion of the social entrepreneurship in Cyprus and has arrived at a very critical juncture, where the social sensitivity and care for the vulnerable groups and the environment is needed more than ever before.

The definition of the “social enterprise” in the Social Enterprises Law is two-fold and it’s distinguished into the social enterprises of:

(i)     general purpose, whose primary object of activity, which must be reflected in its memorandum and articles of association, is the mission to act for the interest and benefit of the society through the promotion of social, cultural and/or environmental actions and, in the context of its activities, invests at least 80% of its profits, after the taxes, for the realization of its foregoing main business purpose;

(ii)   social integration, whose primary object of activity, which must be reflected in its memorandum and articles of association, is the accomplishment of a social mission through the employment in its workforce of disable persons, at the minimum rate of 10%, and of persons belonging to vulnerable groups (as they defined in the Law), at the minimum rate of 30% and, in the context of its activities, invests at least 40% of its profits, after the taxes, for the realization of its foregoing main business purpose.

In addition to the above qualifications, a social enterprise may be registered in the Register of Social Enterprises which, in accordance with the Law, it shall be held by the Commissioner of Cooperative Companies Services, if:

(i)     it provides goods or services on the basis of a business model whereby more than 70% of its revenues emanate from a business activity,

(ii)   it applies predefined procedures and regulations in relation to the distribution of dividends, with a view to safeguard its economic viability;

(iii) it is managed in an entrepreneurial, responsible and transparent manner, especially with the participation of its members, employees and/or customers, accordingly, as well as with other interested parties who are affected by the business activities of the social enterprise;

(iv) it applies remuneration policies and practices, so that the highest remuneration paid to any employee in the company, is no more than four (4) times the remuneration received by the lowest-paid employee of the company.

Pursuant to the Social Enterprises Law, a social enterprise, being a legal entity with corporate personality, may take the form of a private company with limited liability by means of shares or guarantee registered pursuant to the provisions of the Companies Law or of a cooperative society registered under the provisions of the Cooperative Societies Law or of a partnership registered in accordance with the provisions of the Partnerships Law.

Although the Social Enterprises Law already contains the procedure and description of the requisite supportive documents which need to be submitted to the competent authority for the purpose of registering the social enterprise in the Register, no application is currently accepted by the Commissioner for the registration of a social enterprise, pending the approval and passing into law of the draft regulations which are now under the process of public consultation and are expected to be enforced very soon.

EU Commission priority measures and benefits for Social Enterprises

The European Commission in its Social Business Initiative identifies and projects the challenges that the social enterprises are facing, some of which are similarly faced by any SME and some others concern mainly the social enterprises, due to, amongst other factors, the nature of their business model and the low familiarity of the investors with this sector.

In the context of and towards the implementation of the social business initiative (SBI), the European Union, through the Commission, has set and constantly develops measures, policies and incentives in order to tackle these challenges and support the social enterprises and innovation. The policies and measures are briefly outlined below:

1. In order to improve the access and make it easier for social enterprises to obtain funding, the Commission (1) has put forward a European regulatory framework for social investment funds, (2) encourages the development of microcredit in Europe by improving the related legal and institutional framework (Progress Microfinance Facility) and (3) has set up an EU programme for employment and social innovation which, essentially, is an EU financial instrument providing easier access to funding. (4) The EU has also made social enterprises an investment priority of the European Regional Development Fund and the European Social Fund.
2. For increasing the visibility of social entrepreneurship, (5) the Union is developing a comprehensive map and an exhaustive register for social enterprises in Europe, so that the stakeholders to be able to identify the best practices and replicable models and specify the characteristics, business model, economic weight, cross-border growth potential, the tax regime and the legal framework in which they operate etc. (6) The Union also intends to create a public database of labels and certifications applicable to social enterprises in Europe, (7) it helps national and regional governments introduce measures to support, promote and finance social enterprises (the Guide to Social Innovation reflects a relevant attempt) and (8) has created a multilingual information and exchange platform for social entrepreneurs, business incubators and clusters, as well as social investors (Social Innovation Community).
3. In order to make the legal environment friendlier for social enterprises, (9) the Commission works on the simplification of the rules and legal environment for social enterprises, (10) has rendered quality and working conditions more important criteria for the awarding of public procurement contracts, particularly for social and health services and (11) has simplified the rules for awarding public aid to social and local services, an action which benefits many social enterprises.

For detailed information about the foregoing eleven (11) measures, actions and/or initiatives of the Commission in relation to the furtherance of the policies aiming to support and promote the social entrepreneurship may be found in the official website of the European Commission, in the section of the Social Enterprises

[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee for the Regions – Social Business Initiative, Brussels 25.10.2011, COM(2011) 682 final.

  Author: Antonis J. Karitzis