Directors run state hospitals, private clinics, companies and businesses that will be affected by the government's decisions during the COVID-19 pandemic and will be called on to decide the life or death of the businesses that they run. This article examines directors' duties in the face of a crisis from a corporate law perspective.
The Contracts Law provides the legal framework for establishing legally valid and enforceable agreements in Cyprus. However, in real-life commercial situations, parties may not always achieve the certainty required to ensure that an agreement or contract term is valid and enforceable. The pressure associated with reaching an agreement often causes parties to defer important contract terms in order to close a deal at the expense of certainty and, ultimately, enforceability.
The provisions on the striking off of Cypriot companies set out in the Companies Law were recently amended to introduce a simplified process to reinstate a company which is struck off as a result of failure to file mandatory documents or to pay the annual levy to the registrar. The simplified process aims to enable companies that are struck off due to irregularity to be reinstated within two years, without having to resort to the courts
When an initial coin offering (ICO) is structured through a Cypriot company, directors' duties are highly relevant. The directors must approve the framework within which the ICO will be launched. While doing so, directors are legally required to protect the company's interests in line with their fiduciary duties. When directors also invest their own funds in an ICO, under Cypriot law, they must still maintain a conflict-free position.
Shareholder petitions of unfair prejudice have been compared to divorce petitions. Indeed, these shareholder disputes tend to carry the same level of acrimony, especially when courts are faced with the option of deciding the sale of one shareholder's shares to another. Fairness is at the heart of the courts' consideration when deciding cases of unfair prejudice and shareholder oppression.
Specific rules apply to the service of court and judicial documents and judgments issued by Cypriot or foreign courts in Cyprus. Among other things, companies must publish details of their registered offices with the Registrar of Companies upon incorporation and file a notification with the registrar within 14 days of any change of address. In addition, the private service of documents must be carried out by a Supreme Court-licensed private process server.
The concept of a 'golden share' was devised to maintain control of newly privatised companies as they adjust to the free market environment or to prevent takeover by overseas shareholders of private companies operating in fields of national interest. Cypriot company law is silent on the rights enshrined in golden shares. However, case law provides that golden shares represent a separate class of shares, which enable holders to exercise veto rights by having weighted voting rights on specific matters.
Shareholders of a Cyprus company have the right to request that the directors convene an extraordinary general meeting (EGM), and the directors are legally obliged to do so within a specified time. For the EGM to be legally valid, it must be made only by those who hold at least one-tenth of the company's paid-up share capital and have the right to vote in general meetings. Further, it must be signed and deposited at the company's registered office and must be called within 21 days of the request.
The EU Corporate Social Responsibility Directive regarding the publication of non-financial information by certain groups of large companies was recently transposed into domestic law. Pursuant to the Transposing Law, such companies must publish non-financial reports on how they address environmental protection, social responsibility, human rights, anti-corruption and bribery, and diversity on company boards in terms of age, gender and educational and professional backgrounds.
Shareholders' excitement over a new joint venture can be overshadowed when issues concerning the available options for exit from the investment arise for discussion. It is prudent for shareholders to address the full spectrum of their investment as early as possible, including the start-up stage and the operation of and exit from the investment. Company law and practice provide tools to create the boundaries necessary to protect shareholders' business relationships from third parties and each other.
The third amendment to the Companies Law recently took effect, substantially amending the information which must be included in financial statement reports. The director's report has effectively been replaced by a broader management report, which aligns with the increased transparency required in financial dealings. Failure to comply with the new reporting requirements constitutes a criminal offence and may lead to imprisonment of the company's officers and a fine.
A recent bill submitted to Parliament for review makes directors accountable to the Tax Department for taxes due on company assets. Under the bill, company directors or other persons exercising management and control over a company will be required to submit an annual return listing the company's assets. Further, they will be required to ensure that the company pays all taxes due to the relevant authorities.
The board of directors of a company cannot bring a claim against wrongdoers controlling the company to prevent the oppression of minority shareholders. Instead, an oppressed shareholder can bring a derivative claim under common law. The latest amendments to the Companies Law provided clarity to the operation of companies; it is worth examining the applicable rules of derivative actions in that context.
The Cyprus partnership law was recently amended to introduce the partnership limited by shares. Its introduction is expected to attract a significant number of investors from across the European Union; the vehicle is likely to be used in particular by Polish closed-end fund structures carrying out commercial transactions. The amending law has also made it possible for alternative investment funds to be formed as limited liability partnerships.