In times of financial difficulty, the Personal Insolvency (Personal Repayment Plans and Debt Relief Order) Law of 2015 in Cyprus provides a structured way for debtors to manage their debts while protecting their principal residence. This law is designed to balance the interests of both debtors and creditors.
However, what happens when creditors seek to cancel these repayment plans?
This article explores the detailed procedures, criteria, and potential challenges involved in the cancellation of Personal Repayment Plans (PRPs). Whether you're a debtor looking for protection or a creditor ensuring your rights, understanding this legal landscape is essential.
The procedure for the issuance, approval and imposition of Personal Repayment Plans is regulated by the Personal Insolvency (Personal Repayment Plans and Debt Relief Order) Law of 2015 (65(I)/2015) ("the Law"). The purpose of the Law is to implement a framework for the protection of insolvent debtors in such a way that creditors are not in an inferior position than they would have been, if the debtor's property were disposed of according to the provisions of Bankruptcy Law Cap 5. The Law aims to preserve and protect the principal residence. The Legislature attempted to establish the mechanism, this special procedure, to protect the core of the rights of the involved parties, as a response to the crisis in the financial sector, with the aim of ensuring a balance between them and distributing the burdens in a proportionate manner.
Insolvent debtors who are unable to repay their debts are beneficiaries. The Law provides a checklist of criteria that must apply cumulatively in order for a debtor to be considered eligible for a Personal Repayment Plan ("PRP") such as habitual residence in the Republic of Cyprus, being insolvent and there being a reasonable prospect that participation in a PRP will facilitate him becoming solvent within five years. The Law also requires that the debtor fully and truthfully discloses his personal assets, income and expenses by submitting a Statement of Personal Financial Information ("SPFI").
The main recipients of PRPs are credit institutions and credit acquiring companies. Nevertheless, in a proposed plan, all the debts are included, secured or unsecured (e.g. the balance of a property purchase price, common expenses, tax debts, court judgments in favor of third parties etc). The selected, licensed Insolvency Practitioner prepares the PRP taking into account the debtor's assets, debts and reasonable living expenses of his household and dependents. Through the PRP, the Insolvency Practitioner proposes the way to repay and/or restructure debts by paying monthly installments in order of priority and/or selling assets and/or using real estate to provide income.
The Law offers a powerful tool in favor of debtors as it "disables", the otherwise, legal rights of creditors. According to article 61 of the Law, a designated creditor who is bound by the PRP is not entitled to initiate any legal or judicial proceedings against the debtors, to continue legal or other pending proceedings against the debtor, to act in order to secure or recover the repayment of the debt etc. Consequently, creditors must cease exercise of legal rights such as auctions and sales of real estate, foreclosures, adjudication of lawsuits or the promotion of measures to recover the debt.
As part of the process, the creditors are asked to verify their debts, to submit proposals for the repayment of the debt and vote at a creditors' meeting whether they agree to the implementation of the PRP proposal. In the case where the majority of creditors vote against the PRP then the debtor is entitled to unilaterally apply to the Court requesting the imposition of the PRP to the creditors.
The Legislature has set eligibility criteria for the imposition of a non-consensual PRP by the Court. According to the article 72 of the Law, amongst other: -
- At least one of the creditors is a secured creditor, who has security over the debtor's principal residence located in the Republic of Cyprus, the market value of which does not exceed €350.000,00.
- The total value of assets, excluding the principal residence, does not exceed €500.000,00.
- The debtor is unable to repay his debts due to the deterioration of his financial situation as a result of events or circumstances beyond his control, which have occurred since 2009 and had the effect of substantially reducing his income by at least 25% or more.
- The Insolvency Practitioner has signed a statement of opinion that the debtor meets the eligibility criteria and the PRP will have the effect of putting the creditors in the same or superior position than they would be if the debtor's assets were disposed of according to the provisions of Bankruptcy Law, excluding assets unavailable and respecting the order of priority for the debts.
Designated creditors have a legal right to apply to the Court to cancel the Court Order imposing the PRP. The deadline set by the Law is strict and obliges the creditor to promptly react, after the Court Order is served. A creditor who deems it right and prudent under the circumstance to apply for the cancellation of the Court Order must do so within fifteen days of the service of the Court Order imposing the PRP. Indicatively, an imposed PRP may be cancelled due to the following:
- The debtor's inability to repay his debts is not due to the deterioration of his financial situation by at least 25% because of events or circumstances beyond his control (e.g. the reduction rate is lower or is the result of the debtor's actions).
- There are substantial inaccuracies or omissions in the SPFI which substantially impair the rights of the creditor.
- The real financial circumstances of the debtor show that the creditor is in a worse position than he would be if the assets were disposed of according to the provision of Bankruptcy Law.
- The application of the provisions of the PRP do not expose the possibility that the debtor will become solvent within five years (i.e. the debtor will remain insolvent despite the application of the provisions of the PRP).
There is an increasing trend in the application of the provisions of the Personal Insolvency (Personal Repayment Plans and Debt Relief Order) Law by debtors who wish to protect their principal residence, by gradually paying part of their debt. However, PRPs prevent creditors from collecting what is owed if the debt is unsecured or outline a long-term plan where creditors receive a comparatively small percentage of the outstanding debt. Simultaneously, the increased risk of abuse of the process by debtors wishing to delay or suspend legal proceedings against them, cannot be overlooked. Provided that the creditors have grounds to support an application for the cancellation of the imposed PRP Court Order, such an application is beneficial in cases where the debtor has income or property that would justify the repayment or restructuring of the debt, outside the framework of the Personal Insolvency Law. Otherwise, the application of the Law provides a method of debt payment, without the need for the creditor to take further legal action to recover the debt.
In summary, navigating the complexities of Personal Repayment Plans requires a thorough understanding of the law. By examining the procedures and grounds for cancellation, both debtors and creditors can better protect their interests and make informed decisions within the framework of the Personal Insolvency Law.
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.