The reform of the insolvency statutory framework to which Cyprus consented to in 2015, was one of the terms of the Memorandum of Understanding between the government of Cyprus, the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission (EC) program, as agreed in 2013 during the banking crisis. The reform was indeed achieved both by passing entirely new statutes and amendment of the Companies Law, Capital 113 and the Bankruptcy Law, Capital 5, as it will be discussed in the forthcoming paragraphs.

In a nutshell, the new insolvency regime consists of five parts and to a great extent mirrors the model which was adopted by Ireland. Two out of five relate to legal entities or companies, amending the existing Company Law Cap 113; the first one consists of a new scheme called “examinership”, while the other amends the provisions on liquidation allowing for faster and more cost effective liquidation of insolvent, nonviable companies. The new regime applicable to natural persons consists again of two parts, the one relating to modernization of the Bankruptcy Law in order to allow for a “fresh start” for insolvent debtors through their discharge after three years of bankruptcy, subject to appropriate safeguards. The other part relating to natural persons is a Law on Personal Insolvency, implementing provisions for debt relief orders and personal repayment plans to people with virtually no income or assets. The last part of the new regime sets out criteria for obtaining a license to act as an Insolvency Practitioner and effectively regulates the role of the Insolvency Practitioner.

As a general remark, the new regime attempts to provide incentives for repayment and restructuring of debt. A the same time, for the first time a rescue culture to be put into place, ensures a speedier and more efficient procedure leading to rescuing and the rehabilitation of debtors. Moreover, it tries to modernize and streamline the procedure for the compulsory liquidation of companies, resulting in minimizing the time taken to complete the process, thus facilitating and expediting the return of productive assets on the market. Last but not least, giving a formal and official structure to the role of the insolvency practitioner, safeguards the rights and property of the insolvent people, both legal and natural, against the rights of the creditors, further enhancing this rescue culture.

To begin with the concept of examinership, a company which is inter alia unable to pay its debts and there is no liquidation order while at the same time there is some reasonable prospect of the company surviving, may file a petition to the Court to appoint an examiner. By appointing an examiner, the company is automatically placed under the protection of the Court for a period of time not exceeding 4 months; notably it is up to the discretion of the Court to extend further this four-month period. During this standstill period the company is not to go into liquidation, a Receiver is not to be appointed, secured assets are not to be disposed of, the company is safeguarded from creditors and no Lawsuits are to be initiated against the company. The examiner’s role is to investigate the affairs of the company and make proposals for its survival through a compromise or an arrangement scheme so as to keep the company alive as a going concern. The above mentioned proposals must be submitted to the Court for approval. In case of approval and consequently once the compromise or settlement comes into force, both the Court protection and the Office of the examiner come to an end. The process of examinership is therefore a mechanism for the restructuring and rehabilitation of viable companies, allowing them to live rather than pushing them to die in such a volatile environment as it is currently the Cypriot economy. At the same time, placing proper safeguards hardly makes the amendment an escape route by which companies can evade their creditors or liabilities; the purpose is to provide an otherwise unavailable chance to re-direct the fate of the company, kick off a new start and ultimately prevent its failure and associated effects on the wider economy.

The other piece of legislation relating to companies changes the provisions on liquidation. Firstly, it amends the criteria for assessing the inability of a firm to pay its debts increasing the minimum debt required for a creditor to petition for winding up from from €854 to €5,000c and adds that for a company to to be deemed to be unable to pay its debts the court must be satisfied that the net asset value is negative, that is to say the value of the company's assets is lower than the sum of its liabilities, taking into account both its current and future liabilities. What is more compulsory liquidations must be completed within eighteen months from commencement unless the court grants an extension making the new insolvency procedure quicker and ensuring the return of assets back into the economy. This is further reinforced by another new accelerated process which aims to avoid any unnecessary delays and consequently reduce costs, by which the Liquidator may apply to the court for early dissolution of the company if he is satisfied that the assets of the company are insufficient to cover the costs of liquidation and that the company's affairs do not require further investigation. Another notable change which addresses the delays and bottlenecks created by the involvement of the court in the procedure, is the power given to the liquidator by the Court to manage assets subject to charges in favour of third parties if the court is satisfied that the disposal of any secured property of the company in this way may result in a more beneficial realization of the company's assets than by alternative means. The liquidator is granted also the authority to distribute any surplus, after repaying the secured creditors, to unsecured creditors. All of the above together with the new requirements of obtaining the relevant work experience and expertise in consultancy to hold the office of the liquidator (he/she must be a licensed and regulated professional insolvency practitioner) constitutes a major chance of survival for companies that are close to liquidation.

Moving on to the regime applicable to natural persons, as mentioned above, it is reformed again by two pieces of legislation. The first piece, the Bankruptcy (Amendment) Law of 2015 amends the previously allegedly outdated provisions on bankruptcy allowing for discharge of bankruptcy of an insolvent debtor after a period of 3 years on the condition that all their property both movable and immovable Is sold and the proceeds generated have been used to repay creditors. This new law is said to address the serious issue which arose under the existing regime where a bankrupt was effectively a "hostage" of the system and was never given a chance to a fresh start, further enhancing the rescue culture of the new regime

Last but certainly not least, the reformed statute on Personal Insolvency, namely the Insolvency Individuals (Personal Plans Repayment and Debt Waiver Order) Law of 2015 allows for the restructuring of secured and unsecured debts of insolvent individuals, as well as debt relief for individuals with no income or assets. Under the new regime, debtors with unsecured debts are now able to apply for relief of an amount of up to €25,000 if his/her assets are valued less than €1,000 and his/her monthly income is less than €2,000. The application for debt relief will be made to the Insolvency Service who will process the application and apply to the court for an order giving effect to the debt relief. Under the same piece of legislation, the court is given the power to enforce a 95-day standstill period, whereby creditors and debtors who are currently unable to pay their debts but have some repayment capacity voluntarily come up with a re-scheduled payment plan. If the repayment plan is consented by 75% of the creditors or more as well as the court, then it is made binding. Creditors who do not approve of the repayment plan are given the right to present their case before the court. The court has the authority to reschedule the repayment plan given that the following criteria are met. Collective liabilities must amount to more than €350,000; the individual’s primary residence property was purchased for €300,000 or less and has been mortgaged in favour of one or more creditors; the collective value of the remainder assets are not more than €250,000; the individual’s was unable to repay debts due to reasons that were beyond his/her control, which consequently led to a 25% or more decrease of his/her income. Clearly, this new framework could be described as squaring the circle by providing solutions to the issues arising out of non-performing debts, since increasing defaults of loans undoubtedly have a domino effect to the economy as a whole. At the same time the new framework tries to balance the interests of creditors and debtors recognizing their rights and protection they enjoy under the existing legal framework as well as their free will and their intentions in the contractual arrangements between them.

Interestingly, as seen from the above analysis of the new insolvency framework, it seems that the Courts’ role in its application is, undoubtedly, of huge importance. Indeed, many if not all of the new as well as amended provisions require the engagement of the courts in order to effectively facilitate their application. Consequently, taking into account that litigation in general is time consuming coupled with the fact that it cannot guarantee the resolution of non-performing debt, the new insolvency regime needs to be predictable in the sense that the law should provide clear and comprehensive guidelines on how the courts should exercise their discretion, particularly when the court ́s decision involves an assessment of economic and commercial issues, in addition to legal issues. In this way, court hearings will be held promptly and disputes will be resolved within reasonable time, while ensuring the proper balancing of the interests of all the players in the field of insolvency. In such a rapidly changing environment of the property markets in Cyprus, delay in the court's adjudication as a result of inadequate guidance can have adverse effects on the value of the assets of individuals, or the viability of the enterprise which are at the core of the new legal framework.

Hence the approach adopted by the courts in combination to the requirement for advice and the spreading of information as regards the benefits as well as the requirements for debtors to be able to acquire such benefits from the competent bodies will be critical factors in determining the degree of success of this newly created insolvency regime.