Spotlight on Cyprus: Local and global connectivity in action

This article is based on a series of presentations made at Quantuma’s Navigating the unique structures and stakeholder interests in insolvency and restructuring in Asia-Pacific seminar, which was held in London in November 2024.

Why is Cyprus such a pivotal link in the Asia-Pacific trading and investment corridor?

Cyprus has been one of the main points of contact between East and West right through from ancient times to the emergence of the cosmopolitan and multilingual international financial and transshipment centre we see today.

One of Cyprus’ key attractions is its provision of a tax-efficient and business-friendly gateway into the European Union (EU). The investors setting up holding companies or channelling capital through Cyprus include businesses from the UK, which are able to build on the two countries’ historic ties and mutual use of common law. The importance of Cyprus for the UK investing community has strengthened since BREXIT.

Recent years have also seen a huge surge in investment from the Middle East, China and other Far Eastern and South-East Asian countries. Foreign non-EU investors are not only using Cyprus as a gateway to the EU, but also to the Middle East, Africa and the Americas.

Other significant sources of investment into Cyprus include Eastern Europe and the Middle East. Cyprus has built up especially strong ties with Dubai in recent years.

Russian investment in Cyprus is less prevalent than it used to be, following the banking sector crisis of 2012-2013, the de-offshorisation schemes introduced by the Russian Government and more recent imposition of EU sanctions following the Russian invasion of Ukraine. Although these developments highlight the impact of geopolitical tensions on globally interconnected international financial centres like Cyprus, we all know that geopolitics is dynamic and fluctuating and Cyprus could stand to benefit from a new world order.

The complex and extended multinational fund and corporate entity structures that run through Cyprus can be difficult to unravel, especially when seeking to establish the ultimate beneficial owner (UBO) and centre of main interest (COMI) or trace and recover debts and other assets. The complexities of insolvency and recovery can be compounded by organised efforts to conceal assets, move them offshore or dissipate them amongst family and friends.  

Why is Cyprus emerging as such an important hub for cross-border restructuring?

Cyprus has a number of longstanding advantages as a focal point for cross-border legal action and enforcement. These include its application of company law similar to the UK model as well as mutual recognition and enforcement of international judgements under the United Nations Commission on International Trade Law (UNCITRAL) Model Law.

More recently, restructuring and asset recovery in Cyprus have been revolutionised by the island’s experience of dealing with non-performing loans (NPLs) in the wake of the 2012-13 banking crisis.

Key developments include the modernisation of what had been a slow and uncertain insolvency regime, which had created delays in judgement and hampered foreclosure. Since 2015, significant changes have been introduced to Cyprus’ insolvency regime. This includes the introduction of licensed insolvency practitioners to ensure that appointment takers are adequately educated and experienced to perform their assigned duties. In line with the EU directive on providing individuals and companies with a second chance, the new legislation has also opened the way for examinership along the lines of the Irish model, under which an insolvency practitioner (the ‘examiner’) is appointed to review the company with a view to developing a restructuring plan. Further developments include a much faster and more flexible foreclosure regime. The expertise that has been accumulated by all involved parties such as the insolvency practitioners, the legal advisers, the Courts and the authorities has enhanced the effectiveness of the receivership tool and the various voluntary and creditor-initiated liquidation schemes.

Just as important as the legal reforms have been the innovative solutions and legal precedents that have emerged from Cyprus’ successful NPL reduction and business stabilisation. Our Cyprus-based restructuring and insolvency team here at Quantuma has experienced this firsthand in projects that have included the receivership of the island’s largest retail chain. Our work helped establish crucial precedents for future cases. We were also able to keep the stores open for long enough to ensure that the redundancies were managed correctly and ethically, while divesting assets in the most profitable way.

Similarly, we have been appointed as receivers/managers in a  number of companies operating in the strategically critical hospitality and real estate sectors. Our strength as a team in managing and trading businesses as a going concern has helped us to enhance the value realised through the sale. Through a number of receiverships and liquidations in these sectors we have worked with our selected legal advisers to successfully defend against a significant number of hostile legal actions. These defences include interim orders to prevent possession and/or realisation of the assets and a number of examinership petitions which were used by the debtors as frustrating and delaying tactics. Using our long-established expertise in insolvency practice, we have the ability to successfully locate and secure possession of the various assets of the subject companies.

Boosting your chances of recovery

These legal precedents and innovative solutions are now being successfully applied to cross-border restructuring and asset recovery. So how can you and your clients make the most of the potential? Four priorities stand out:

1. Access on the ground and diverse expertise

   Being able to work with insolvency practitioners based in Cyprus not only helps to provide a realistic understanding of the legal processes and possibilities on the ground, but also allows for the application of the latest innovations and precedents to secure a successful outcome.
   
   Our team here in Cyprus positions us to deliver this local insight and presence. This includes navigating the nuanced eligibility criteria and compliance demands needed to initiate legal proceedings locally and recognise and enforce rulings from outside.

   Similarly, local expertise is critical in preparing substantiated affidavits supported by valuations and other financial reports used successfully within lawsuits and asset sales. Drawing on support from our corporate finance team, these assessments form a key part of our work with banks, foreign investors and companies in receivership.

2. Reach out globally

   Alongside local knowledge, the complex multinational structures surrounding many restructuring and asset recovery cases underline the importance of collaboration across different jurisdictions.
   
   We have seen firsthand how a company with a Cypriot parent or entity could quite conceivably have operations and investments in Eastern Europe, the Caribbean, the Middle East and multiple jurisdictions across the Asia-Pacific region. The need for clear planning and coordination would therefore stretch from gathering evidence across different jurisdictions to negotiation with creditors with potentially competing demands and expectations. Similarly, when making investments in new territories, it’s important to have people on the ground who understand the local market, advise on the risks and liaise with potential partners. 
   
   Our work in relation to a group operating in the international energy sector highlights the value of this global reach. In this specific case the Receiver was appointed as a result of a dispute between the shareholders of the group and his mandate was to protect its asset position. Drawing on Quantuma’s international network and our international colleagues’ and associates’ local expertise, we were able to quickly replace the existing directors of a number of subsidiaries located in various jurisdictions in Europe, the Middle and the Far East and thus safeguard the assets of the group, enhancing this way the effectiveness of Quantuma Cyprus’ insolvency practitioner, who was appointed as Receiver of a Cyprus registered holding company.

   We successfully defended a number of lawsuits filed in the offshore jurisdictions and we used the services of trusted and experienced IT professionals to gain control of the Group’s data and email servers while forensic accounting specialists assisted us with a thorough report on the Group’s transactions and in this way strengthen our reporting to the Court.

3. Pick your spot

   For any multinational insolvency case, it is important to determine the COMI and seek to instigate initial proceedings in the relevant jurisdiction. However, within the complex multinational structures that are typical of these entities, determining the COMI is not always clear cut. That is why it is so important to unravel the entity structures and relationships between them to establish where the principal funds are held and key decisions are made. As we have seen in a number of cases, it may be necessary to initiate parallel proceedings in Cyprus, the Caribbean and Asia-Pacific jurisdictions, underlining the importance of international collaboration.

4. Track down hidden assets

   Forensic investigation is essential in tracing and recovering missing or misappropriated assets, with the trails often leading from the Asia-Pacific to jurisdictions in the Caribbean, Europe and the Middle East.
   
   The benefits of forensic investigation can be seen in the ongoing liquidation of the Labuan-based City Credit Investment Bank and its Caribbean subsidiaries. Our forensic team has been playing a key role in tracing dissipated assets and tracking key individuals across multiple jurisdictions including Malaysia, Hong Kong, Indonesia, Japan, the British Virgin Islands and the Cayman Islands, as well as the UK and US.
   
   Forensic investigation is a rapidly developing field. Augmenting traditional investigative techniques with AI-assisted e-discovery and open-source intelligence analysis allows us to take a faster and more closely targeted approach to evidence review and gathering, while helping to identify crucial links between seemingly unconnected people and evidence. In the City Credit Investment Bank case, this tech-assisted detective work has enabled us to efficiently sift through more than two terabytes of emails, phone messages and other electronic data to establish relationships, locate assets, search for evidence of negligence and possible fraud and support applications for recognition and legal proceedings in other offshore jurisdictions.

Here to help

Our office in Cyprus is one of 26 across our internationally integrated network of insolvency and restructuring teams, who work with investors, creditors and their legal representatives around the world to protect value and recover assets.

We work with clients to deal with all aspects of insolvency work, from distressed M&A to regulatory and contentious litigation and investigations. We recognise that complex situations involving multiple jurisdictions require a thorough understanding of the legal, commercial and cultural challenges at play in order to deliver the best outcomes.

Our global network brings together both the people on the ground and the international connectivity to manage complex cross-border assignments. Our hands-on approach and ability to collaborate closely across different jurisdictions greatly enhances the likelihood of success for our clients.

All our fees are tailored to the nature and complexity of the assignment. In addition to retainers, we can often offer flexible performance-related fee structures, including equity arrangements and milestone payments.

If you would like to discuss any of the issues raised in this article or find out how we can help you or your clients to trace and reclaim missing assets, please get in touch.

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