As a general principle, it is not possible for a Cyprus company to buyback and, thus, own or to cancel its shares. Nevertheless, a public company is exceptionally permitted to own its own shares; according to sections 57A – 57D of Cap. 113, the ability of a public company to acquire its own shares is possible although such acquisition is still subject to a series of conditions set forth by the Law. However, this is not the case for a private company that is not allowed to buy and/or otherwise acquire and hold its own shares; this may only be effected, indirectly.

At first instance, a private company may be able to acquire and hold its own shares through the procedure of forfeiture of shares. Subject always to the provisions of the Articles of Association of each particular company, the mechanism of forfeiture may employed in cases the holder of one or more shares in a company fails to comply with a condition or meet an obligation under which the share or shares, as the case may be, in question, was / were issued to that person. That said, it should be stressed that the Companies Law, Cap. 113 makes no reference to the power of the company to forfeit any of its issued shares; instead, it is left open to each company to incorporate (or not) the mechanism of forfeiture as well as its particulars in its Articles of Association. In this regard, the Model Articles of Association included in Part I of Table A of the Companies Law, Cap. 113 provides for a specific mechanism, according to which the company’s Board of Directors may forfeit the share(s) of a member only in the case the said member “fails to pay any call or instalment of a call on the day appointed for payment thereof”. Given that, although, the Model Articles of Association included in Part I of Table A does not necessarily apply in all cases, the forfeiture mechanism can be interpreted in a more broad and liberal, but always reasonable, way and thus, the particulars thereof can be adjusted to the specific needs of each particular company.

In any event, however, following the exercise of forfeiture, the forfeited shares (free of any rights for the benefit of the holder for so long as these are held by the company) may be held by the company for an indefinite period of time while such forfeited shares are considered, in essence, as forming part of the unissued share capital of the company and, thus, may at any time be sold (issued), re-allotted, cancelled or otherwise disposed of at the discretion of the Company. That said, in view of the fact that forfeited shares will be treated as unissued shares, it becomes apparent that the forfeiture of shares could therefore be considered as equivalent to the cancellation of shares out of the company’s issued share capital.

That notwithstanding, depending on the circumstances of each particular case, the forfeiture of shares may not be the proper way to achieve the desired result. To be more precise, despite that the forfeiture of shares may serve the purpose of cancelling issued shares leading in their inflow to the company’s unissued capital (but not the transfer thereof in the ownership of the company), this may also be effected through their direct cancellation by way of reduction of the issued share capital of a company. However, the cancellation of issued shares in that way is a bit complicated in the sense that the legitimizing basis of the cancellation must be well-justified.

More specifically, in so far as the reduction of the share capital of a company is concerned, section 64 of the Companies Law, Cap. 113, provides an indicative list of reasons on which a company could rely for the reduction of its company’s share capital:

(a) Extinguish or reduce the liability on any of its shares in respect of share capital not paid up.

(b) Cancel any paid-up share capital which is lost or unrepresented by available assets;

(c) Pay off any paid-up share capital which is in excess of the wants of the company;

(d) Cancel paid up share capital for the purpose of writing off losses of the company;

(e) Cancel paid up share capital by the creation of a reserve, to be called “the capital reduction reserve fund” which will be subject to the same treatment as the share premium account.

In terms of the reduction of the share capital of a company, the fact that the list provided for in the Law is not exhaustive, is of particular importance, since it enables the company to make various adjustments in its share capital. Besides, both section 64 of the Companies Law, Cap. 113 (“[…] a company […] having a share capital may […] by special resolution reduce its share capital in any way […]”) and the regulation 46 of the Model Articles of Association included in Part I of Table A of the Companies Law, Cap. 113 (“the company may by way of a special resolution reduce its share capital […] in any way […]”) give the company the power to reduce its issued capital in any way. In this respect, it is worth to note that, relying on the relevant legislative provisions, the reduction of the share capital of a company is always subject to the confirmation by the Court. Therefore, in view of the fact that the competence of a Court to approve and confirm the reduction of the share capital of a company arises provided that the general meeting of the interested company has duly passed a special resolution for reducing its share capital, it follows that a company may well pass a special resolution to this end according to which its issued share capital is reduced otherwise than in accordance to the rights of the company’s members, including the ability to reduce its issued share capital by cancelling one or more shares out of its issued share capital, provided this is duly justified.

On the whole, although it seems that the mechanism of forfeiture of shares and that of cancellation of shares by way of reducing the issued share capital of a company may serve the same purposes, it is of utmost importance to underlying the key-elements underlying each of the said mechanisms, as explained above. In any event, however, it is clear that in order for a company to effect either forfeiture or reduction, its Articles of Association must specifically make a reference to the power of the company to effect the respective action. On that basis, the company through its managing body, the Board of Directors, must specifically examine the particulars of each case it appears before the same so as to assess its merits as well as the options available and powers granted pursuant to the respective company’s Articles of Association so as to be in a position to decide of the treatment of each such case.

The ability of a Cyprus company to issue redeemable shares is determined in its Articles of Association that constitutes the instrument that sets out the regulations with regards to the operation of the Company. More specifically, relying on template Articles of Association included in Table A of the First Schedule of the Companies Law (Cap 113), and in particular to regulation 3 thereof, “subject to the provisions of Section 57 of the Law, any preference shares may, with the sanction of an ordinary resolution, be issued on the terms that they are or at the option of the Company are liable, to be redeemed on such the terms, and in such manner [in terms of, among others, time, notice period, price and tranches] as may be determined by special resolution of the Company before the issue of such shares”. According to the said mechanism, a person may temporarily become a shareholder of a Cyprus company while his/her share shall be redeemable either at the option of the same or the company.

Retrieving from the aforesaid regulation included in Table A of the First Schedule of the Companies Law (Cap 113), the issue of redeemable shares is made by ordinary resolution while it is the Company -at a General Meeting- that determines through a special resolution (passed before the issue of such redeemable shares) the manner of redemption. In light of the provisions of the regulation in question, whether the holder of the shares or the Company can proceed with the redemption is determined by an ordinary resolution of the General Meeting while the particular manner of redemption (among others, whether, in the case the shares are redeemable at the option of the Company, the General Meeting or the Board of Directors will have the right to redeem the said shares), is determined by a special resolution of the General Meeting. However, in the event that the Company fails to determine the manner of redemption, the remaining provisions of the Company’s Articles of Association must be taken into consideration so as to find out whether the Board of Directors is authorized to exercise such power; if not, the Board of Directors may -in the circumstances- have to bring the matter to the attention of the General Meeting so as for the latter to resolve, by way of special resolution, the manner of redemption.

Moreover, in so far as the status of redeemable preference shares is concerned, it is worth noting that, as a general principle, preference shares usually carry some preferential rights in relation to other classes of shares, particularly, in relation to ordinary shares. Besides, neither the Law nor the common law attach a rigid, uniformly applicable meaning to ‘ordinary’, ‘preference’ or other description of shares. In other words, while preference shares are usually associated with certain preferential rights, in the absence of specifically determined rights in the terms of issue thereof, it follows that the redeemable preference shares are issued on the same terms as the existing shares. Besides, as noted by the Supreme Court of the Republic of Cyprus in Lavinia Investments Ltd ν. Republic (1998) 3 C.L.R. 827 ‘it is assumed that all shares, unless there is evidence to the contrary, grant the same rights and impose the same responsibilities’; this coincides with the presumption of equality of shares. On that basis, we may assume that in the absence of specifically determined rights in the terms of issue of the redeemable preference shares, these are differentiated on that these are issued on the term that they are subject to redemption. That said, it seems that in all other aspects the redeemable preference shares carry the same rights as the existing (at the time of the issue of the first redeemable shares) shares.

Lastly, as regards the substantial nature of redeemable preference shares in terms of their classification as either equity or liability for accounting purposes pursuant to the IFRS, it is stressed that, in general, preference shares redeemable only at the option of their holder can be categorized as equity while preference shares redeemable at the option of the Company are regarded as liabilities or loans, especially in the case that these seem that are or were used as a means for financing; however, such classification always depends on the particularities of each case which must be examined under the IFRS.

All in all, the specific procedure for the redemption of the respective preference shares to be followed in each particular case is largely determined by the manner of redemption as this is set forth in the relevant instrument passed in accordance to the relevant provisions of the Company’s Articles of Association, while of considerable importance is whether the shares in question are redeemable at the option of their holder and/or the Company. Therefore, it becomes apparent that both at the stage of the issuance of such shares as well as at the stage of the redemption thereof, it is of particular importance to respectfully follow the relevant provisions of the respective company’s Articles of Association, which must be properly interpreted in order for any misconceptions to be avoided.

Not many legal issues in the sphere of Cyprus corporate law has attracted so much debate, uncertainty and varied responses than the issue of whether a shareholder’s contribution to a Cypriot company by way of gift is freely returnable to the same shareholder or to all the shareholders of the company without Court sanction. Apparently, the reason for this uncertainty is the lack of clear guidance in the Law and the fact that the question involves a blend of legal and accounting principles.

The purpose of this article is to provide useful hints and guidance when a legal or accounting professional is agonizing over the treatment of a shareholder’s contribution from either perspective.

Some corporate and accounting practitioners hold the view that this question is a pure legal one. Others they opt to the opposite argument that the matter is purely accounting. As already stressed above, this article supports the view that the issue should be addressed from the standpoint of both areas of practice and to our understanding its resolution is reached by answering the following question:

What is the legal nature of the “shareholder’s contribution” and how should it be accounted for in the company’s accounting records and financial statements having regard to acceptable accounting principles (for instance IFRS)?

Thus, the legal nature of the “contribution” is critical to be firstly examined, both from a legal perspective and from the perspective of the IFRS, namely whether the “shareholder’s contribution” should be considered as share capital, equity, reserves, realized profits or some other element reported in the financial statements of an entity should better characterize it, having regard to the principle that what matters is not the label that one chooses to ascribe on a transaction but rather its purpose and substance.

It is noted that the application of IFRS by Cypriot Companies is obligatory under article 143 of Companies Law, Cap. 113.

Definition of Capital

The terms “capital” and “share capital” are not defined in the Companies Law. The term “capital”, in particular, is so wide, vague and ambiguous that has given rise to numerous and varied interpretations, especially when used in different contexts. The word “capital” sometimes means, or may take the meaning of, “nominal capital”, “issued capital”, “paid-up capital”, “loan capital” etc. Also, there is no definition of the term “capital” in Cap. 113. Indeed, as stated by an honorable judge “it is impossible to say that “capital” has a single technical meaning which prima facie should be attributed to the word in any statutory provision”. It is evident that the meaning of the word “capital” takes a more precise meaning when combined with a descriptive word.

For all practical purposes, though, the “capital” represents the cash injected in a company, in exchange of shares, which is destined to be utilized for the business and investment needs of the company.

In corporate reality and law, the term “capital” or “share capital” takes the following form: (1) Nominal capital; (2) Issued capital; (3) Paid-up capital; (4) Reserve Capital; (5) Quasi-Capital Funds (i.e. share premium and capital redemption reserve fund). In all cases, the capital is associated with the holding of shares in a company and represents the share of a holder to the company’s assets after deducting its liabilities. Apparently, the “shareholder’s contribution” cannot be purely and directly associated with the notion of “capital” having regard to the absence of any allocation of shares in exchange to the contribution made by the shareholder.

Equity and Reserves

Equity is mostly an accounting notion than legal and it encompasses wider spectrum of elements within it. The term “equity share capital” used to be found in article 148 of Cap. 113, however was abolished back in 2003 at the same time when the appication of IFRS became obligatory for Cypriot companies. In IFRS, the term “Equity” is defined as “the residual interest in the assets of the entity after deducting all its liabilities”. In assessing whether an item meets the definition of equity and be included under the Equity section of the balance sheet, attention needs to be given to its underlying substance and economic reality and not merely its legal form (IFRS).

The Equity may be sub-classified into the share capital, retained earnings and reserves. The classifications are relevant to the decision-making needs of the users of the financial statements, including creditors, when they indicate legal or other restrictions on the ability of the entity to distribute or otherwise apply its equity (emphasis added).

In accordance with Cap. 113, in the course of the preparation of the financial statements, the only reserve funds with are recognized is the capital and revenue reserve funds. Any reserve other than capital reserve is taken as “revenue reserve”. The creation of reserves is provided in the articles of a company. Table A of Cap. 113 (article 117) provides that the reserve funds are created out of the realised profits of the company at the discretion of the directors who may decide to withhold any amounts out of the profits for investment purposes, for the needs of the company’s business or for any other purpose at their discretion (provided of course that the purpose falls within the objects of the company taking into consideration its best interests).

It has been seen that many professionals, when asked with the question as to where the “shareholder’s contribution” should be recorded they provide the simple answer: under Equity. But, having regard to the definition of Equity, this is not the end of the story. What is important to be stated and determined, of course, is the specific classification of the “shareholder’s contribution” under Equity. 

Classification of Contribution by way of gift

Having regard to the above definitions and interpretations, the absence of any definite quidance in the Companies Law, the principle of both law and accounting which dictates reliance on the purpose and substance of a transaction and the fact that almost invariably the reason that a shareholder contributes in a company is, obviously, to increase its cash reserves so that the company defrays its existing and future business and investment needs, we confidently express our accord with the treatment and classification adopted by many or probably most of the accounting professionals in Cyprus who account the “shareholder’s contribution” by way of gift as a quasi-capital element under Equity and describe it as shareholder’s contribution or equity contribution or alike.

As stressed, the substance and commercial reality of this item is evident or at least anticipated: the injection of the company with additional capital/funds in order to tone up or boost the activities and business of the Company or to settle existing liabilities. A sound reason for which a shareholder may inject funds in a company by way of contribution without getting shares in exchange (as a gift) is for avoiding dilution of the existing holdings. Sometimes, however, the real reason and ultimate aim for the contribution without taking shares in exchange, is the ability and leeway which this arrangement offers to attain return of capital to the contributing shareholder without the sanction of the Court. Nonetheless, it is very much doubted that such an arrangement may stand at law as a legal and tolerable one when it, admittedly, serves as a mechanism to sidestep the provisions of the Law and clearly falls afoul the doctrine of “capital maintenance” which is recognized both in common law and by IFRS (further details about capital maintenance are outlined further down).

Besides, the argument that the contribution by way of gift should be classified as a quasi-capital item in the financial statements is supported by quite recent English caselaw which, even though it is not common law and has only persuasive power for the Cypriot Courts, having regard to the practice of Cypriot Courts, we tend to believe that it would have been followed had the issue come before them. In particular, the Court in that case ruled that capital contributions are to be treated as if they were part of paid up capital and, as such, they are NOT and should not be considered as realized profits available for distribution to shareholders. Yet, it needs to be stressed that the aforesaid caselaw did not examine the issue in question in conjunction with the IFRS rules and did not consider the question of whether a cash contribution gives rise or may also be treated as “realized profits”. Now, whether, in accordance with the accounting principles as enunciated in the IFRS, the cash contribution can be considered as realized profit and as such included in the distributable reserves, is an issued for IFRS experts to opine upon.

Position in the UK

At this point, it is important to note, at least for the sake of information and thought even though not applicable in Cyprus, that in the UK, the recognition of a cash contribution as realized profit in the books of UK companies has been incorporated into the Companies Law of the UK. In particular, section 830(2) of the Companies Act defines a company’s profits available for distribution as “its accumulated, realized profits…”. Realized profits and realized losses are defined in the Act as “such profits or losses of the company as fall to be treated as realized in accordance with principles generally accepted at the time when the accounts are prepared…”. Section 853(4) of the Companies Act 2006 includes in the definition of “profit” any amounts which are profits as a matter of law or which are treated as profits including gratuitous contributions of assets from owners in their capacity as such.

In addition to the abovementioned, ICAEW technical release (Tech 02/17BL) issued in 2017 representing generally accepted accounting practice as of 31 December 2016, suggests that a profit is realized where it arises from, amongst others, a transaction where the consideration received by the company is “qualifying consideration” which, in turn, comprises, amongst others, a gift such as a capital contribution received in the form of cash or in the form of an asset that is readily convertible to cash or in such other form of qualifying consideration (however, it goes on to clarify that it does not apply when the legal form of the transaction is a loan even though it is accounted for as a capital contribution).

The extent of the application, binding or guiding effect of ICAEW’s Technical Release to the accounting principles applying to Cypriot companies is out of the scope of this Article.

Capital Maintenance Doctrine

In light of the aforesaid and on the premise that the substance and economic reality of the gratuitous contribution paid by the shareholder to the Company is pervaded with capital elements (i.e. not a liability or some other element), it is reiterated that the contribution should be recognized and accounted for under Equity as a quasi-capital fund.

Another question which surfaces in the context of this analysis is “whether a company has the option to distribute, in any manner, to a company’s shareholder(s) a past contribution made by the sole shareholder to the company as a gift”, given that, according to the aforesaid, it will be recorded under the Equity as shareholder’s contribution.

The doctrine of capital maintenance has been adopted for the protection of the companies’ creditors and to counterbalance the limited liability priviledge that the shareholders of a company enjoy. According to caselaw, a creditor relies on the financial statements of a company before he transacts with the company and he also gives credit on the faith of the representation that the capital of the company shall be applied only for the purposes of the business and shall not be retunred back to its shareholders. In a leading common law case and, therefore, binding authority in Cyprus, the following important remarks have been enunciated:

“The capital may, no doubt, be diminished by expenditure upon and reasonably incidental to all the objects specified. A part of it may be lost in carrying on the business operations authorized. Of this, all persons trusting the company are aware, and take the risk. But I think they have a right to rely, and were intended by the Legislature to have a right to rely, on the capital remaining undiminished by any expenditure outside these limits, or by the return of any part of it to the shareholders … Whatever has been paid by a member cannot be returned to him. It also follows that what is described in the memorandum as the capital cannot be diverted from the objects of the company. It is, of course, liable to spent or lost in carrying on the business of the company, but no part of it can be returned to a member so as to take away from the fund to which the creditors have a right to look as that out of which they are to be paid”.

Further, in more recent English caselaw, the Court said or accepted the following upon citing earlier common law judgments which deal with the principle of capital maintenance and with the power of a company to make payments to shareholders from sources other than the distributable profits of the company:

“Whether or not the transaction is a distribution to shareholders does not depend exclusively on what the parties choose to call it. The court looks at the substance rather than the outward appearance … A company can only lawfully deal with its assets in furtherance of its objects. The corporators may take assets out of the company by way of dividend, or, with the leave of the court – by way of reduction of capital – or in a winding-up. They may of course acquire them for full consideration. They cannot take assets out of the company by way of voluntary distribution, however described, and if they attempt to do so, the disgtribution is ultra vires the company”.

It is a well-known principle of law that a company cannot lawfully make a distrubution of its capital. On the question whether a payment to a shareholder should be considered a “distribution” and whether has been a return of capital, it is clearly NOT a matter what label is put on a transaction but what matters is its purpose and substance. In that regard, it is very interesting to mention that in a UK case, unjustified payment of remuneration to a director who was also shareholder in the company was deemed to be an indirect return of capital and therefore the Court found the shareholder liable to return the received amounts back to the company.

The concept of capital and capital maintenance is also found in IFRS. The financial concept of capital, which is adopted by most entities in preparing their financial statements, is described in IFRS as the money or purchasing power invested in a company. As such, capital is regarded to be synonymous with the net assets or equity of the entity. This is what a creditor looks at when examining the company’s financial situation and viability to form a decision as to whether to transact with the company or not, i.e. the company’s Equity. The concept of capital maintenance, as stressed in IFRS, is concerned with how an entity defines the capital that it seeks to maintain. It provides the linkage between the concepts of capital and the concepts of profit in the sense that it sets the point of reference by or after which the profit is measured; only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital. Capital maintenance is a prerequisite for distinguishing between an entity’s return on capital and its return of capital (which is prohibited). Hence, profit is the residual amount that remains after expenses – including capital maintenance adjustments where appropriate – have been deducted from income.

Conclusion

In the absence of definite guidance, rules or principle of law in Cyprus on the issue under examination and having regard to the above-mentioned principles and definitions cited in UK legislation, caselaw and guidance (some of which are binding, other have persuasive power and other offer useful guidance) but also the practice and views of most of the accounting practitioners, we tend to the conclusion that the cash contribution by way of gift should, in most of the cases, be safely recognized and accounted for under the Equity element of the financial statements and classified as shareholders’ or equity contribution.

However, it is suggested that the cash contribution might, if the occassions permit, be recognised as “realised profit” in the form of a gain falling to the benefit of the company (not revenue) which even though has not arisen in the course of the ordinary activities of the company’s business, it still increases its economic benefits (see IFRS). Obviously, in order to ascertain whether the item in question should be accounted for under the element of Equity or Income, its nature and function in the business of the company as well as its substance and economic reality should first be examined. Needless to say that this exercise and assessment must be addressed to the people practicing IFRS or even experts of IFRS to carry out, provided they have before them all the relevant and requisite background information of the company under examination.

As one would expect, if the cash contribution is accounted for directly under Equity and take the form of a quasi-capital fund, will be clothed with the qualities, characteristics and restrictions of capital. In the aforesaid case, it should definitely NOT be recorded in the distributable reserves fund account of Equity. In such case (i.e. if goes under Equity as shareholders’ contribution), it should be returned to the shareholders (always based on their respective holdings) ONLY on the winding-up of the company or upon the SANCTION OF THE COURT which is the guardian to safeguard the interests of the creditors. In order to equip the Company with the necessary constitutional mechanisms permitting the return of cash contribution back to the shareholder(s), it is recommended that requisite adjustments are being done, or relevant provisions with appropriate wording are included, in the Company’s Articles of Association (“AoA”) and the usual reduction of capital rules and procedure provided in the Law is followed (that is, reduction of capital through Court).

If the cash contribution is deemed by the IFRS practitioner to be closer to a gain/income and thus a “realised profit”, it should be recorded in the reserves and fall under the discretion of the entity’s board of directors to decide whether will be placed in a distributable reserve and thus available for distribution to the shareholders pro rata to their holdings or to any other reserve fund that may be utilized for the purposes of the business. Again, in the aforesaid scenario, it should be recommended that the AoA of the entity in question is adjusted in such fashion as to reflect and sanction the above reporting arrangement.

Finally, it is worth underlying and someone should always have in contemplation the fiduciary position and duties of the directors to act for the best insterests of a company in the exercise of the powers vested on them. The directors have an obligation to safeguard the company’s assets and take reasonable steps to ensure that the company is in a position to settle its debts as they fall due. Directors must, therefore, specifically consider whether the company will still be solvent following a proposed distribution. Thus, directors should consider both the immediate cash flow implications of a distribution and the continuing ability of the company to pay its debts as they fall due.

The Republic of Cyprus didn’t remain unaffected from the outbreak of the new coronavirus disease (hereinafter “COVID – 19”). As from 11^th of March 2020, the World Health Organization has declared COVID-19 as a pandemic while on 15/03/2019, the President of the Republic of Cyprus and the Cabinet of Ministers have announced a series of measures concerning the public as well as the private sector, including, inter alia, the suspension of the operation of businesses such as shopping malls, coffee shops, bars, restaurants, theaters, clubs, concentration halls e.t.c for a period of 4 weeks. Furthermore, travel restriction measures, flight cancellations, prohibitions of entrance into the Republic of Cyprus, quarantine and mandatory self-isolation measures are currently in force in an effort to limit the exposure of COVID-19 in public.

Definitely, we are currently facing, on a worldwide level, a crisis that will have a great impact not only on public health but also on the commercial sector and economy generally. Although it is too early to make any comment on the exact impact that COVID-19 crisis will have on the public and private sector, one thing is for sure, a wide range of commercial transactions would not be executed, rendering contracts performance impossible. Below, we consider how the common law doctrine of frustration and “force majeure” provisions apply in commercial contracts in the context of the COVID – 19 outbreak.

 1. THE DOCTRINE OF FRUSTRATION

As it was interpreted through case law of the Supreme Court of Cyprus, the doctrine of frustration is governed under Article 56 of the Contract Law Cap. 149 (hereinafter “the Law”). Specifically, Article 56 provides that when a contract becomes impossible or unlawful of performance, after it is made, on account of circumstances beyond the control of the promisor, becomes void when the act becomes impossible or unlawful. The doctrine of frustration does not apply merely to cases where it becomes physically or commercially impossible to fulfill the contract but also to cases where as a result of a certain state of facts or circumstances, the obligation to perform becomes a radically different obligation from that undertaken initially.

In order for a party to rely on the doctrine of frustration, a close examination shall be made to the clauses included in the contract and the Court, when interpreting such contracts, will take into account the verbal and grammatical wording of the agreement, its general commercial purpose and nature as well as the extent of the frustrating event.

The doctrine of frustration results in the contract automatically coming to an end and the parties to the contract will no longer be bound to execute their obligations. Furthermore and regarding the cases where costs have been incurred by either party to the contract, Article 65 of the Law provides that, if a contract is frustrated, any person that has received any benefit from it, is obliged to reimburse the benefit or pay compensation to the other party.

2. “FORCE MAJEURE” CLAUSE

A “Force Majeure” clause – (i.e. “Act of God” or “superior force”) is commonly used in contracts to define certain unexpected events or circumstances, beyond the control of the parties, that may occur and by virtue of which a contracting party may not be able to execute his obligations under the contract. Therefore, whether a certain event may be considered as a “force majeure” as well as whether in case of such event the contract is terminated or suspended depends on the construction and wording of such clause. Commonly, force majeure clauses include political events such as war, strikes as well as natural disasters including but not limited to floods, wildfires etc. “Pandemics”, “epidemics” or “diseases” may as well be considered as force majeure events but again it depends on the construction and the wording of the clause contained in a contract.

For an event to be interpreted as a “force majeure” three criteria must be satisfied:

1. it must be beyond the reasonable control of the affected parties,
2. the parties’ ability to perform their obligations under the contract must have been prevented by the event and
3. the affected party must have taken all reasonable steps to avoid or mitigate the consequences of non-performance. Expanding further on the third requirement and the duty to mitigate, a party relying on a “force majeure” clause will have to show that it has taken all reasonable measures to avoid the event’s consequences and that there are no alternative means for performing under the contract. Such a test relies on the facts of each case and the nature of the event.

The consequences of a “force majeure” clause again rely on the wording and construction of the contract. Most commonly, events falling under the scope of the “force majeure” clause render the contract as terminated and release the parties from their obligations accordingly.

 3. COVID – 19: A FORCE MAJEURE EVENT?

Considering the impact of COVID- 19 outbreak and the measures that were subsequently announced by the government of the Republic of Cyprus on commercial contracts, the first thing that should be done is a careful review of the contractual provisions included in each agreement, examining whether it includes a “force majeure” clause and the definition of any event falling within that clause. COVID-19 as a pandemic shall be captured under such title as well as under “epidemics” or “diseases”, if such provisions are included in the contract. If not, the impact of COVID-19 and of the governmental measures taken may be interpreted and be able to fall under the scope of public health safety and/or restrictive measures and/or governmental actions, if those categories are included in the force majeure clause.

Alternatively, if a contract does not contain a “force majeure” clause, the affected party may attempt to rely on the doctrine of frustration. Again, such reliance and its consequences will depend on the facts and the circumstances of each case while examination shall be made to the provisions of the contract and their interpretation.

For any further information and assistance on the matter, our firm is at your disposal.

Online intermediation services can be considered key to business models, trade and innovation, which can improve consumer welfare, and which can be used by both private and public sectors. The European Union (EU) has published a regulation (Regulation (EU) 2019/1150)^[1] so as to enable the monitoring of online intermediation services and to potentially secure consumers from threats that appear. Ultimately, the aim is to enable the Union to achieve a fair and transparent treatment for the business users who use online platforms, giving them more effective options for redress when facing potential difficulties, creating a more predictable and regulatory environment for online platforms within the EU.

“Online intermediation service”- means services:

a)      which constitute information to the society,

b)      which allow business users to offer goods or services to consumers, with a view of facilitating the initiating of direct transactions between those business users and consumers (irrespective of where those transactions are ultimately concluded)

c)      provided to business users on the basis of contractual relationships between the provider of those services and business users which offer goods or services to consumers

General features of Regulation 2019/1150:

• Providers of online intermediation services shall ensure that they have terms and condition, drafted in plain language and are easily available to business users at all stages of their commercial relationship, including pre-contractual stage.
• Upon any restriction, suspension and termination, the online intermediation services are expected to provide business users with a statement of reasons for its decision, at least 30 days prior to termination taking effect and on a durable medium.
• There shall be a description sufficient so as to enable business users or corporate website users to obtain an adequate understanding of whether, and if so how and to what extent, the ranking mechanisms take into account:

a) the characteristics of the goods and services offered to the consumers via the online intermediation services or online search engine;

b) the relevance of those characteristics for those consumers;

c)the design characteristics of the website used by corporate website users.

Of course, online intermediation service providers are not expected to disclose algorithms or any information that can harm the search result, which can potentially lead to deception of consumers through manipulation.

• It is expected that there should be a description about the economic, commercial or legal considerations included in the terms and conditions, when there is differentiated treatment through specific measures taken by the provider of online intermediation services or the provider of the online search engine, relating to any of the following:

a)      direct remuneration charged for the use of online service concerned and that includes any remuneration that involves functionalities or technical interfaces

b)      ranking or other settings applied by the provider that influence consumer access to goods offered through the online intermediation services by other business users

c)      access that the provider may have personal data or any other data, which business users provide for the use of online intermediation services or online search engines

• Codes of conduct should be available by providers of online intermediation services and by organisations and associates representing them together with business users that are intended to contribute to the proper application

Enforcement rights:

Representative organisations and public bodies shall have a self-standing right to take action before national courts and to counter any non-compliance with the regulation by providers of online intermediation services and search engines. EU countries will in addition provide effective public enforcement mechanisms.

Judicial proceedings can be raised by organisations and by public bodies as long as they satisfy the following criteria:

a)      established in accordance with law of a Member State

b)      a body that pursues objectives that are in the collective interest of the group of business users or corporate website users that they represent

c)      have a non-profit making character

d)      their decision-making policy is not influenced by third-party providers of financing, in particular by providers of online intermediation services

The Regulation has also introduced an alternative mediation mechanism to secure an option of facilitating the out-of-court settlement of disputes with business users, taking into account the cross-border nature of online intermediation services.

The Regulation shall enter into force on the 12 July 2020. There will be an evaluation of the Regulation by January 2020 and will follow every three years. It will essentially assess the impact and effectiveness of any established codes of conduct to improve fairness and transparency and also access the effect of the Regulation on any possible imbalances in the relationship between providers of operating systems and their business users.

Footnote

[1] Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32019R1150.

Bringing your business to Cyprus certainly comes with a lot of benefits. Your business will of course be a priority to you, but in life we have many priorities and your family and lifestyle will also be a serious concern for you when considering a relocation.

 A great new life for you and your family

Cyprus is a wonderful place to open a business, but it’s also a fantastic island to live in and raise a family. The amazing climate of course will bring you a lot of pleasure, but in Cyprus you also have access to brilliant educational establishments, world class medical facilities and one of the lowest crime rates in all of Europe. You’ll find plenty of great opportunities to spend your free time having fun at award winning beaches, visiting a wealth of historical sites, and of course dining out at the many superb bars and restaurants.

So many benefits for business

When opening a business in Cyprus, you’ll also enjoy a higher standard of living as the tax system is very favourable when compared to other systems within Europe and beyond. Cyprus has a very good and highly regulated banking system, so you can rest assured that your money is in safe hands and expert advice is there should you need it. The Cypriot economy has proven itself to be exceptionally stable with a wide range of industries thriving here from tourism to shipping and professional services.

A prime location

Location wise, Cyprus is in the perfect geographical situation giving you ease of access to three continents. Transport becomes easier when you’re located at a hub such as Cyprus, so whether you’re travelling for business yourself, importing stock or exporting products, you’ll certainly benefit from Cyprus’ idyllic location.

Everything you need for a positive future

Cyprus has a strong infrastructure, great telecommunications and a highly talented, skilled workforce. If you need staff for your business, you’ll have no problem finding the perfect candidates for your positions in Cyprus. Cyprus is a forward thinking and innovative country, always looking for new ways to push forward. From modernising traditional industries, to giving help to start ups, Cyprus supports businesses as it looks towards a bright future.

We’re here to help and guide you

Opening a business in Cyprus is not as complicated as you may imagine. In fact, with the simplicity of the Cyprus Citizenship Scheme, relocating to Cyprus is far easier than moving to many other countries. Here at A. Karitzis & Associates LLC we have all the expertise needed to ensure setting up your new business in Cyprus goes smoothly, quickly and is as stress free as possible. If you’d like more information regarding opening a business in Cyprus, please visit our website.

When you’re making the decision to move overseas, it’s so important to make the right choice as to where you’re going to relocate to. There are many factors that come into play, from the climate to the education system. We believe Cyprus is the perfect place to live, a wonderful place to work, to enjoy your leisure time and to raise a family and here are just some of the reasons why…

 1. The perfect climate

Many people cite the weather as a reason for moving overseas. Living in a colder country can become depressing. We long for the sunshine, to spend time outdoors. For those of us who love walking or sports, it makes so much sense to move somewhere with better weather. With over 320 days of sunshine each year, Cyprus is the obvious choice for sun lovers! When you can count on good weather, you can take a stroll along the beach any day you like, it’s so uplifting, it has such great benefits for your mental well-being. The perfect stress reliever. You can start every day with a swim, spend your weekends hiking or enjoying water sports.

 2. All the benefits of an EU member state

Geographically, Cyprus is perfectly placed for ease of access to markets across three continents. Being a member of the EU, as a Cyprus citizen your business can benefit from ease of exportation and visa free travel throughout the EU and to many non-EU countries too. Property restrictions in the Euro Zone have recently been lifted making property ownership even more desirable, and the banking services in Cyprus are all in line with EU regulations making it a high standard system offering a great service.

 3. A legal system you can rely on

When you buy a home in Cyprus you don’t have the worries regarding the legal system and your property purchase as you may have in other countries. The Cyprus legal system is based on UK standards with a very reliable land register. Purchasing property in Cyprus can be done with confidence and the title deed holder is the sole legal owner of the land purchased, offering you perfect peace of mind.

 4. Tax benefits

With a move to Cyprus you’ll also be able to reap the rewards of the tax system. With double tax treaties with more than 40 countries, including the UK, no capital gains tax on profits under 17,088 euros and corporation tax set at just 10% for resident businesses, it’s easy to see how you can save money when you live in Cyprus.

5. A high standard of living

Your overall standard of living is certain to improve when you relocate to Cyprus. The cost of living is much lower than most of the rest of Europe, the USA and Japan.

 6. Amazing facilities

The education system in Cyprus is incredibly good. If you have children you can rest assured that they will receive a high level of education, and if you’re looking for a talented workforce for your business, you won’t have any trouble finding it within the island. The healthcare facilities are also very advanced and technologically impressive. You’ll find the medical staff in Cyprus very highly trained and all speak very good English so you won’t have to worry about communication difficulties.

 7. A low crime rate

Cyprus also has one of the lowest crime rates in Europe. The people of Cyprus are friendly and honest. It’s not unusual for people in Cyprus to leave their cars unlocked and their doors open. Crime is so rare here it’s just not something that the Cypriots really worry about.

Find your new life in Cyprus – with our expert guidance

If you’d like to know more about relocating to Cyprus, please do get in touch. We specialise in ensuring your move is fast and goes smoothly. We are highly knowledgeable in the Cyprus Citizenship Programme and all other legalities with regards to moving to Cyprus.

The global economic crisis in conjunction with the enhanced practices imposed by the international business and other standards has forced and continues to force many companies to enter liquidation proceedings for the purposes of their dissolution. Retrieving from the Cyprus Companies Law, Cap. 113, there are various ways through which a private company limited by shares may be dissolved. Apart from restructuring any arrangements and mergers that may also lead to the dissolution of a company, the main mechanisms aiming directly at the dissolution of the company are the voluntary liquidation (by the company’s members or creditors, under the supervision of the Court or not), the compulsory liquidation by virtue of an order of the Court and the strike-off available in simplest cases. In light of the aforesaid, it is of utmost importance for the Board of Directors of a company to consider the most appropriate, in the circumstances, mechanism for the dissolution of each such company.

(a)    Voluntary Liquidation (by the company’s members or creditors)

The procedure of the voluntary liquidation varies depending on whether proceedings have been initiated by the company’s members or creditors.

To be more precise, the simplest way of voluntary liquidation is the one initiated by the members of the company, a procedure that is available provided that the company is solvent in the sense that it is able to pay all its debts, within one year from the commencement of the liquidation procedure; such solvency is confirmed by the company’s Board of Directors through the execution of an affidavit to this end. Following the execution of the Solvency Declaration, the company’s members must hold an Extraordinary General Meeting, in the course of which the said Solvency Declaration is taken into consideration for the purpose of deciding upon its entering into liquidation proceedings and, if so, upon the appointment of one or more liquidator. In the course of the liquidation, the liquidator(s) shall arrange for the liquidation of the company’s affairs, following which the Final Liquidation Account shall be drawn and the Final General Meeting must be convened leading to the company’s dissolution.

Instead, in case of an insolvent company, whose liabilities exceed its assets, it is only possible to proceed with the company’s voluntary liquidation by its creditors, in which case both the members and the creditors shall hold a meeting for the purpose of deciding upon the appointment of one or more liquidators while in case the Creditors deem so appropriate, they may appoint an inspection committee. In the course of the liquidation, the liquidator(s) shall arrange for the liquidation of the company’s affairs, following which the liquidator(s) shall send notices convening the final meetings. Upon completion of the members / creditors of the Company, the liquidator(s) shall arrange for the submission of the Final Liquidation Account, which will lead to the company’s dissolution.

In any case, there is always the possibility for a creditor, contributor or other interested party, to apply to the Court in order for such voluntary liquidations to be pursued under the supervision of the Court.  

 (b)    Compulsory Liquidation (by an Order of the Court)

In contrast to the voluntary liquidation proceedings, which are ‘internally’ initiated, a compulsory liquidation is ordered by the Court by virtue of a Court Order issued in the course of an Application filed to that end by the company, a creditor, a contributor or any other interested party, among others, in case the company has by special resolution resolved that it shall be wound up by the Court, in case there default in pursuing any of its statutory liabilities and/or commitments or in case the company is unable to pay its debts. In such a case, the company is dissolved following the liquidation, in full, of its affairs.

(c)     Strike Off the Companies’ Registry

The strike-off of a company from the Companies’ Registry constitutes an alternative way through which a company is dissolved, available to dormant companies and/or companies the businesses and/or operations of which have been ceased and which (companies) have no longer any assets or liabilities and do not intend to carry on any business and/or in the future. In fact, the strike off constitutes an administrative procedure, effected, among others, through the communication of a notice or series of notices from the Registrar of Companies to a company or of a letter-request from a company to the Registrar of Companies, directly leading to the strike off of the company’s name from the Companies’ Registry.

More specifically, such a procedure may be initiated by the Registrar of Companies in case the latter reasonably believes that a company has ceased its business and/or operations or, in the case of a company under liquidation, that either no liquidator acts on behalf of the company or the affairs of the company have been fully liquidated. In addition, the Registrar of Companies is vested with the authority to strike-off a company from the Companies Registry upon receipt of an application submitted by the respective company’s Board of Directors (provided that the company in question has fulfilled all its statutory and ancillary obligations and has settled all its affairs including -with no limitation-, the closing of all its bank accounts held worldwide, its de-registration from the VAT Service and the obtaining of a Tax Clearance Certificate from the Tax Department), upon the lapse of one year as of the company’s failure to settle its annual levy on time or upon the lapse of six months as of the company’s breach of statutory obligation to file to the Registrar of Companies any document and/or form, including the annual return (HE 32) accompanied by the respective financial statements and/or to settle its annual levy on time.  

 In light of the above, the main differences between Strike-Off and Liquidation/Wind-up proceedings can be summarized as follows:

Lastly, it is worth-noted that a company that has been dissolved may, subject to the provision of the Companies Law, Cap. 113 and the settlement of all its affairs, applicable in each particular case, may be reinstated through a Court Application and/or the simplified process of (administrative) reinstatement, as the case may be, which (application) may be submitted by any of the interested parties (including directors, shareholders, creditors etc) entitled, by law, to file such an application.