Introduction
Bankruptcy is the process whereby a natural person (a debtor) is declared unable to pay debts incurred and/or due and, as such, all his available assets are used so as to indemnify all of his creditors.
General
The bankruptcy of a debtor is governed and regulated by the Bankruptcy Law, Cap 5 and by the Bankruptcy Rules, Cap 6.
According to the jurisprudence, any debtor who was
- ordinarily resident in Cyprus;
- conducting his business personally or by means of an agent in Cyprus;
- a member of a firm and/or partnership which conducts its business in Cyprus
at the time when any act of bankruptcy was committed or suffered by him, may be adjudged bankrupt by the Cypriot Courts. (s.3(2) Bankruptcy Law, Cap 5)
Bankruptcy proceedings will only commence provided the debtor has committed one of the acts of bankruptcy. Inasmuch, as set out by s.3(1) Bankruptcy Law, Cap 5, a debtor commits an act of bankruptcy if:
- within Cyprus or elsewhere he transfers or pledges his property to any person in favor of his creditors;
- within Cyprus or elsewhere he fraudulently transfers, donates, delivers, or confers his property or part thereof;
- within Cyprus or elsewhere he transfers or pledges his property or any part thereof, or creates a surcharge upon it that, according to the Bankruptcy Law, Cap 5 or any other law, would be deemed void as a fraudulent preference if the debtor was declared bankrupt;
- with the intent to annul or delay payment towards his creditors, he commits one of the following:
- flees or is prepared to flee from Cyprus, or while out of Cyprus, he remains abroad, or
- abandons his place of residence or is in any other way absent, or
- remains indefinitely in his residence;
- he submits to the Court a declaration of inability to pay the incurred debts or files an application for self-bankruptcy;
- a creditor obtained a final judgment or order for the payment of any amount against the debtor and, within the legal timeframe of the execution of that judgment or order, a notice of bankruptcy was served to the debtor;
- the debtor, while indebted to a creditor, neglects to pay or settle or arrange payment of his debts within the timeframe granted by the court order; or
- he concedes to any of his creditors that he is unable to fulfill his obligations towards them or postpones payment of his incurred debts.
Further, for a creditor to be eligible to file a bankruptcy petition the alleged act of bankruptcy must have occurred at least three months prior to the filing of the petition and the total debt due to the creditor(s) applicant(s) must add up to at least €854 (£500). (s.5 Bankruptcy Law, Cap 5) A debtor’s petition for self bankruptcy will only be valid if the total amount of his debts exceeds €8540 (£5000). (s.8 Bankruptcy Law, Cap 5)
Proceedings and Ramifications of Bankruptcy
Bankruptcy proceedings commence with the filing of a written bankruptcy petition to the court. The petition may be filed either by a creditor(s) having a provable debt against the debtor or by the debtor himself. Whether the petition is accepted or dismissed lies with the absolute discretion of the Court.
Upon hearing the petition, the Court must receive sufficient proof; inasmuch, it must be satisfied that there is a debt owed by the debtor to the creditor, that the petition was served to the debtor and that the debtor has committed an act that essentially constitutes a justifying act of bankruptcy. Should the Court decide to accept it, it will issue a Receiving Order against the property of the debtor and if the debtor cannot make any arrangement to settle his debts, the debtor will be thereby declared bankrupt by the same court.
In such a case, the debtor’s property will be vested in the custody of the Official Receiver (a public officer acting on behalf of the Court) who will hold it and will respectively control the debtor’s financial affairs until a trustee in bankruptcy is appointed for the eventual proportionate distribution among the creditors. The appointed trustee may either be one of the creditors or the Official Receiver himself, and will distribute the debtor’s assets to the creditors under the powers vested in him by and based on the relevant rules of Bankruptcy.
It is important to note that for these purposes ‘property’ constitutes property which the debtor possessed at the outset of bankruptcy and property which he acquired between that period and up until his eventual discharge. Property held by the debtor on trust for any other person, and/or, any other property that would be exempt from distribution under any applicable law which is in force in Cyprus at the time, does not constitute part of the debtor’s property that will be distributed among the creditors. (s.42 Bankruptcy Law, Cap 5)
Acquittal
After the bankruptcy procedure has been concluded, any debtor is able under s.27A Bankruptcy Law, Cap 5 to file an application to the Court for acquittal. Whether the debtor in question will be granted or refused acquittal lies with the absolute discretion of the Court. Inasmuch, the Court, based on the official report produced by the Official Receiver, will examine the debtor’s conduct in whole, including the period of bankruptcy, and, if satisfied, it may accordingly issue an order for acquittal either on conditions or absolutely.
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