1. Overview
1.1 What are the main trends/significant developments in the project finance market in your jurisdiction?
The majority of lenders in Cyprus continue to be credit and finance institutions for locally-based projects, whilst international banks commonly finance larger projects and/or international projects where the underlying assets are based abroad.
The financial market has also recently flourished, as many investment funds have relocated or established their base in Cyprus, commonly falling under the alternative investment funds category. The local regulator, the Cyprus Securities and Exchange Commission, has provided a reliable and modern framework for such funds to operate, although financing is still largely managed by banks and credit institutions.
Inevitably, in line with the EU's long-term aims and sustainability efforts, the European commission has granted millions of pre-financing to Cyprus under the Recovery and Resilience Facility (RRF) to help the implementation of crucial reforms and investments outlined in Cyprus' recovery and resilience plan.
The RRF in Cyprus finances investments and reforms that are expected to have a deeply transformative effect on Cyprus' economy and society, including a transition to 'green' technologies and a digital transformation of public services, as well as additional economic and social resilience.
1.2 What are the most significant project financings that have taken place in your jurisdiction in recent years?
Certain large-scale hospitality and tourism projects have been financed in Cyprus, such as the Limassol, Ayia Napa and Larnaca marinas, as well as the Limassol integrated casino resort, which is expected to be the largest in Europe. Certain projects are financed on a public-private partnership, where the land is leased from the government to a private operator for a pre-agreed number of years.
Also, the discovery of gas fields in the Cyprus Exclusive Economic Zone has initiated the government's planning for a liquefied natural gas (LNG) conversion plant that will enable international exports in the future. Aiming at the management and utilisation of the findings, and recent private investments in a major oil terminal by VTTI in the Vasilikos area, the government's goal is to create a master plan for the area that will involve hydrocarbon-related infrastructure.
Apart from the domestic aspect, an increasing number of international finance projects are structured, negotiated and documented through Cyprus holding entities although the underlying project is located elsewhere, as Cyprus has proven to be a reliable and efficient jurisdiction when it comes to enforcement and asset recovery. Corporate structures in project financing, including Cyprus special purpose vehicles, are also being increasingly used by leading airlines to finance and/or lease commercial aircrafts.
2. Security
2.1 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
As per standard practice, a separate agreement is entered into in relation to each type of asset. This is due to the fact that different registration or perfection requirements may exist for different types of security. A security agreement creating a charge is registrable with the Cyprus Registrar of Companies (ROC) against the Cyprus company chargor, pursuant to s.90 of the Cyprus Companies Law, Cap. 113 (the Companies Law) in order to be valid against such company's liquidator or any creditor thereof. The security agreement must be registered within 21 calendar days (if executed in Cyprus) or within 21 days from the date on which the same could, in due course of post, and if dispatched with due diligence, have been received in Cyprus (if executed abroad). In the latter case, the ROC has as a rule of practice allowed the registration of charges created abroad to take place within 42 days of the execution thereof. Also, s.99 of the Companies Law provides that a security agreement must be entered into the register of charges or mortgages of the company, accordingly. Mortgages are also subject to registration while other perfection requirements apply for Cyprus pledges.
2.2 Can security be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?
The most common form of security taken over real property is a legal mortgage. Mortgages give the mortgagee a contractual first priority right on the immovable property and a right to apply to the land registry department (LRD) for the sale of the same on a default in the repayment of the loan.
A legal mortgage is only constituted when registered, and any dealings relating to the mortgaged immovable property are impossible save with the consent of the mortgagee. Immovable property may be charged with a second or further mortgage(s), only with the express written consent of all previous mortgagees. The mortgagee should also be registered with the LRD.
A mortgage over immovable property is created by an instrument in writing signed by the mortgagor and the mortgagee, and both them must attend the district LRD where the immovable property is situated to declare the mortgage to a qualified officer by presenting the signed instrument.
If the mortgagor is a legal entity, it must also register the mortgage with the ROC in the prescribed form and within the prescribed time limit.
Failure to register the mortgage with the LRD will render the mortgage void against all persons, including the mortgagor, mortgagee, liquidator and any creditor of the company or third party.
Equipment, machinery and other goods are most commonly secured by a floating charge.
2.3 Can security be taken over receivables where the chargor is free to collect the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?
Usually, security is taken over receivables through a security assignment. Receivables may be assigned by an assignment agreement and, if such agreement creates a charge, this is registrable with the ROC pursuant to s.90 of the Companies Law and is entered into the register of charges of the chargor, as s.99 dictates.
2.4 Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?
Security can be taken over bank accounts, and such security is usually a pledge. If such bank account pledge is entered by a Cyprus company, the security is registrable with the ROC pursuant to s.90 of the Companies Law, and in the register of charges of the pledgor pursuant to s.99 of the same Law.
2.5 Can security be taken over shares in companies incorporated in your jurisdiction? Are the shares in certificated form? Briefly, what is the procedure?
Yes, it is possible to pledge the shares of a Cyprus company. A pledge of shares in a Cyprus company held by a corporate shareholder/pledgor (whether or not a Cyprus company) is exempt from registration with the ROC. For a pledge over shares of a Cyprus company to be valid and enforceable, the formalities of s.138 of the Contract Law, Cap. 149 must be observed, namely: (a) the pledge must be made in writing, signed by the pledgor and pledgee and witnessed by at least two witnesses; (b) notice of the pledge must be given by the pledgee to the company whose shares are being pledged; (c) a memorandum of the pledge must be entered in the register of members of the company whose shares are being pledged; and (d) the company must issue and deliver to the pledgee a certificate executed by the appropriate officer of the company confirming the fact of the registration of the pledge in favour of the pledgee.
2.6 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?
The Cyprus Stamp Duty Law No. 19/1963 (Stamp Duty Law) subjects to ad valorem stamp duty all documents (including contracts) concerning property situated in Cyprus or concerning matters to be executed or to take place in Cyprus, subject to certain exceptions, irrespective of where the same are signed.
For contracts the value of which ranges between EUR 5.001–EUR 170,000, the current rate of stamp duty is EUR 1.50 for each EUR 1,000 or part thereof; for contracts the value of which is over EUR 170,000, the current rate of stamp duty is EUR 2 for every EUR 1,000 or part thereof, with a ceiling of EUR 20,000. This maximum amount of stamp duty is payable on any document or on any transaction which has several documents; in a transaction having several documents, the parties may designate the main document which will be subject to the full stamp duty. The other transaction documents may be stamped as secondary documents in the amount of EUR 2 each, provided they are dated the same day as, or very close to, the main transaction document. Late payment of stamp duty will result in penalties which range according to the period that elapsed between the date the stamp duty arose and the date of submitting the documents for stamping.
In order to determine whether a document is subject to stamp duty in Cyprus, the documents may be sent to the Stamp Duty Commissioner for a ruling under s.31 of the Stamp Duty Law.
S.21 of the Stamp Duty Law provides that any document drafted outside Cyprus, and which is subject to stamp duty pursuant to the provisions of the Stamp Duty Law, will not be considered as being drafted or having effect in Cyprus until the applicable stamp duty is paid. However, any document signed abroad and which is subject to stamp duty in Cyprus will be considered as having being signed in Cyprus on the date on which it was received in Cyprus; and, in such case, the document may be stamped within 30 days of its receipt in Cyprus. Therefore, if a document which attracts stamp duty under Cyprus law is signed and kept abroad, the stamp duty will not need to be paid until the same is brought into Cyprus.
Failure to pay stamp duty is a regulatory penal offence which does not render a document void, but merely requires in the future that the applicable stamp duty plus a penalty be paid; further, in the case of court proceedings, the court will not recognise the document as evidence unless it is stamped. Therefore, even if the document is not stamped as it was executed outside Cyprus and kept there, if proceedings need to be issued in Cyprus, it will need to be stamped in order to be recognised.
The registration of a charge with the ROC pursuant to s.90 of the Companies Law is subject to the payment of a nominal fee, while the fees for registration of a mortgage on immovable property are calculated on the secured amount and constitute 1% thereof.
2.7 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?
Registrations take place under established procedures either in the LRD or with the ROC, depending on the nature of the security granted and if such registration is necessary. As mentioned above, the registration of an agreement creating a charge must be effected within 21 calendar days (if executed in Cyprus) and within 42 calendar days (if executed abroad). For the registration of a charge with the ROC, a copy of the executed agreement is required along with a duly completed prescribed form. If the relevant agreement is drafted in a language other than Greek or English, a certified true translated copy of the same is also submitted. The submission of the relevant form can be effected within a business day, while the ROC usually requires up to three weeks to issue the corresponding certificate of registration of charge. The entry of a security agreement into the register of charges or mortgages of a Cyprus company can be made within a day. Similarly, the registration of a mortgage with the relevant LRD is quite straightforward, and the submission of a prescribed form together with the payment of the relevant fee is required.
2.8 Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground), etc.?
No consents are usually required for the creation of security over immovable property. Certain industrial plots and/or property situated in industrial zones or other specific areas (e.g. residential property in the marinas) are held under a leasehold agreement entered into with the Cyprus government. In these cases, consent from the Cyprus Ministry of Energy, Commerce, Industry and Tourism is required before mortgaging the relevant leasehold property and registering the relevant mortgage with the competent LRD.
3. Security Trustee
3.1 Regardless of whether your jurisdiction recognises the concept of a "trust", will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?
In general, Cyprus recognises the concept of a trust. Also, it is possible for a security trustee or agent to be used for the purposes of enforcing security. In such cases, the relevant security is granted to the security trustee or agent in favour of all or some of the lenders/charges. The underlying documents would usually specify the powers of such security trustee or agent. Where a security trustee is involved, the relevant security agreement is registered with the ROC as a charge over the assets of the Cyprus company (chargor) in favour of such security trustee or agent.
3.2 If a security trust is not recognised in your jurisdiction, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?
As mentioned above, Cyprus recognises the role of a security trustee.
4. Enforcement of Security
4.1 Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/liquidator), or (b) (in respect of regulated assets) regulatory consents?
There is no requirement for a public auction following enforcement of security. It is generally possible for a security agreement to be enforced judicially and a judgment for the sale or the secured assets to be obtained.
Certain security agreements may be enforced out of court and in accordance with their terms, namely: (a) a floating charge over the assets of a company may be enforced out of court, by the appointment of a receiver over the relevant assets; (b) a pledge over shares in a Cyprus company, provided that the relevant mechanism allowing out-of-court enforcement has been incorporated into the pledge agreement (i.e. documents allowing the transfer of the shares on the name of the pledgee have been exchanged); and (c) a mortgage over immovable property.
4.2 Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?
Foreclosure is regulated by the Transfer and Mortgage of Immovable Properties Law 1965 (as amended) by which the mortgagor's rights in a secured asset are extinguished either via an auction or sale and the secured asset is transferred to the buyer. The proceeds of sale are applied against the secured amount and any remaining amount is paid to the mortgagor. A creditor enjoys the right of foreclosure only when the mortgage has been registered in the relevant LRD, and such right cannot be exercised where there are pending court proceedings for the secured amount. Foreign investors and creditors, provided the exercise of the statutory foreclosure right is in compliance with the applicable procedure, will not be treated differently from local creditors.
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Originally published by International Comparative Legal Guide to Project Finance 2022.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
