Cyprus: Determining Insolvency

Last Updated: 30 September 2019
Article by Efrosini Monou and Ioannis Sidiropoulos

Most Read Contributor in Cyprus, October 2019

Distressed companies are those facing financial crises not resolvable without a considerable recasting of the firm's operations, structures and finance. This can be brought about through a company's failure to make a substantial payment of principal or interest to a creditor. Distress can also be seen in terms of financial ratios, for example in terms of liquidity and longer-term solvency. The basic and most prevalent forms of corporate distress assessment are the cash flow and the balance sheet tests, which apply both to going concern and break up (insolvency) valuation. In terms of break up valuation, under the cash flow test, a company is insolvent when it is unable to pay its debts as they fall due. Under the balance sheet test, the entity is insolvent if the book value of its assets, as listed on the conventional balance sheet, is less than its reported liabilities. The notions of asset exchangeability/liquidity and time prospect of sale are of great importance, particularly for the balance sheet test, as the latter includes the assessment of assets' value, by definition (UK Insolvency Act, 1986, 123 [2]). In this article, we first present the international/UK insight and, then, the Cyprus position on the matter.

The long-term assessment required for the application of the balance sheet test is based on the notions of prospective and contingent liabilities (UK Insolvency Act, ibid). Prospective liabilities are '...a debt which will certainly become due in the future, either on some date which has already been determined or on some date determinable by reference to future events.' (R Goode, Principles of Corporate Insolvency Law). This can be the case of a claim which is not disputed, but which remains to be quantified, resulting in a debt of more than one nominal amount. Contingent liabilities may include cases where the debt is for an unliquidated amount, or if its payment is uncertain or dependent upon some future event. An example of contingent liabilities is the obligation of the company to pay an amount in the future, on condition that a lawsuit against it is successful. These concepts induce quantitative and qualitative uncertainty to the balance sheet test.

In Eurosail (BNY Corporate Trustee Services & Ors v Eurosail-UK 2007-3BL PLC & Ors [2013] UKSC 28 May 9 2013), the court realised that the long-term analysis needed to determine the future position of the company concerning its assets and liabilities, was heavily context dependent. The factors affecting the estimations were the currency fluctuations, the real estate market and the movement in the London interbank offered rate (LIBOR) which determined the interest rates of the loans, to be effective until 2045. The implied opinion of this judgment is that the balance sheet test is unstable.

It seems that the cash flow test is a more accurate method to use to provide an indication of insolvency. As the cash flow test focuses on the ability to pay debts when due, it is a more precise and more eligible indication of the actual condition of the company. A business entity cannot get into debt in the ordinary course of its business and then ignore its obligation to pay that debt. Moreover, creditors may not be willing to agree to wait for payment. Apart from the volume of the debt in the capital structure, the timing of the required repayment of the debt is important. A high proportion of debt with a fast-approaching due date can create a risk of insolvency, mainly when the entity's assets are rather illiquid and economic conditions result in cash flow deficiency from business activities.

The cash flow test also has its asset-based side, but this concerns existing asset liquidity and not a long-term assessment (as is the case with the balance sheet test). The test refers not only to presently due debts but also to those falling due from time to time in the 'near future'. The meaning of 'near future' in this context will depend on all the circumstances, particularly the nature of the company's business. In this situation, a decent forecast is feasible, without the danger of subjective long-term projections.

In Cyprus, the relevant parts of the provision on the grounds for court-sanctioned insolvency are Sections 211 e (company unable to pay its debts) and 212 of Cap 113 (Companies Law), which are quite similar to Section 123 of the UK Insolvency Act. Both the above-mentioned tests are applicable (212 c and d) and contingent and prospective liabilities are considered, also, in both. Moreover, two additional indicators can be used: 212 a) 'if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding 5,000 Euros ($5,500) then due has served on the company, by leaving it at the company's registered office, a written demand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum or to secure or settle it to the reasonable satisfaction of the creditor'; or 212 (b) 'execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part'.

The specificity of the circumstances described in Article 212 does not limit the generality of Article 211 as regards the inability of a company to pay its debts. That is, the special provisions of Article 212 constitute a number of circumstances which create a legal presumption of non-payment of debt, but do not exhaust the scope for any other testimony which might produce the same effect (C Phasarias [Automotive Centre] v Skyropoiia 'Leonik' Ltd, [2009] 1 Supreme Court of Cyprus 1457). These options demonstrate the flexibility of the Cyprus jurisdiction in this matter and its capacity to accommodate various cases of corporate insolvency, both, also, relating to the jurisdiction's common law nature.

Originally published by IFLR.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions