1. Understanding the Floating Charge
A floating charge is a security interest granted by a debtor—or a third party for the debtor’s benefit—over all or part of its present and future assets as security for its obligations. Unlike a fixed charge, it allows the debtor to manage and dispose of the charged assets in the ordinary course of business.
Crystallization occurs when specific events—such as winding up, the appointment of a receiver, or other triggers in the debenture—transform the floating charge into a fixed charge. At that moment, the company loses the freedom to deal with the charged assets.
As highlighted in Halsbury’s Laws of England (4th ed., Vol. 7, para. 827), the timing and nature of crystallization depend on the wording of the debenture, which may make it automatic or discretionary. Careful drafting and review of these provisions are therefore essential.
2. When to Place a Company into Receivership
Receivership usually arises when a borrower breaches financial covenants or defaults on its obligations under loan or debenture terms. Debenture holders monitor compliance primarily through the cash-flow and balance-sheet tests under Article 212 of the Companies Law.
When a company faces distress—declining revenues, liquidity pressure, or inability to refinance—the secured creditor may appoint a Receiver to protect and realize its security, often as a last resort before full liquidation.
3. The Receiver and Manager: Appointment and Powers
Eligibility
Only a licensed Insolvency Practitioner—approved under the Insolvency Practitioners Law and Regulations of 2015—can serve as a Receiver and Manager.
Legal Basis
The Receiver’s authority stems from:
- The company’s constitutional documents (its memorandum and articles of association); and
- The terms of the debenture creating the security.
In Bank of Cyprus v. Orphanides & ors (Action 4275/2013, Larnaka DC), the court confirmed that a Receiver may act over all charged assets for the benefit of the debenture holder.
Principal Powers
A Receiver and Manager may:
- Take possession of and realize charged assets;
- Operate or arrange for the operation of the company’s business;
- Borrow or obtain credit using assets as security;
- Sell or lease property (by auction or private treaty);
- Enter into arrangements beneficial to the secured creditor; and
- Repair, insure, or maintain the charged assets.
Although the Receiver assumes control over the charged property, the Board of Directors remains in office and continues to perform limited statutory duties—such as maintaining company records, preparing and filing returns, and managing assets outside the scope of the floating charge.
4. Duties and Liabilities of the Receiver
The Receiver’s primary duty of care is owed to the debenture holder, and only a limited secondary duty extends to guarantors of the secured debt (Hellenic Bank v. Polydorides (1993) 1 ΑΑΔ 68). There is no duty to unsecured creditors.
The Receiver must act in good faith and for a proper purpose, securing the best price reasonably obtainable at the time of sale (Silven Properties v. RBS [2004] 4 All ER 484; Bell v. Long [2008] 2 BCLC 706).
Failure to comply with statutory obligations—such as filing receipts and payments under Article 340(2)—can lead to fines and court enforcement (Re Daedalos Hotels Ltd, App. No. 747/2009, Nicosia DC).
5. Receiver and Liquidator: Coexistence and Priority
If a liquidation follows, the rights of the secured creditor are unaffected. The Receiver continues to realize charged assets because, in equity, those assets belong to the secured party rather than to the company.
Upon completion of the receivership, any surplus proceeds must be surrendered to the liquidator, not to the directors.
6. The Receivership Process
Appointment Mechanics
The appointment process is governed by the debenture’s terms. The creditor must issue a formal demand for payment and allow a reasonable period—typically about an hour—to comply. Errors in the amount demanded do not invalidate the appointment where a genuine debt exists (Polynikis Tourist Enterprises Ltd v. Hellenic Bank, Action 2804/2014; Re Recnex, Application No. 76/2011).
Post-Appointment Obligations
Within 14 days, the Receiver must file a Statement of Affairs (Article 340(1)(β)) and take steps to preserve the assets (Silven Properties; Assiotis & Sons Ltd v. African Safari Gifts Co Ltd, Claim No. 1570/2004, Nicosia DC).
Sale and Distribution of Proceeds
The Receiver is not obliged to enhance or “work” the property before sale. Proceeds are distributed as follows:
- Realization costs;
- Receiver’s and debenture holder’s expenses;
- Preferential creditors (Articles 89 and 300, Cap. 113); and
- Secured debt repayment.
7. Termination of Receivership
The receivership ends when:
- The Receiver completes the mandate and files Form HE38;
- The Receiver resigns, dies, or is dismissed; or
- The court orders termination.
Once completed, any residual assets pass to the liquidator (if appointed), and the Receiver’s authority ceases.
Conclusion
Receivership in Cyprus provides a structured and equitable means of enforcing secured rights while preserving value. For practitioners, precision in drafting and reviewing security documentation, careful monitoring of financial covenants, and strict compliance with statutory duties are essential to a successful receivership.
Handled properly, the process allows creditors to recover efficiently while ensuring transparency, accountability, and compliance with Cyprus corporate law.
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