Issue of Debentures/Bonds in a Cyprus private limited company

Author: N. Pirilides & Associates LLC
Date:2017-04-04
According to Section 29 of the Cyprus Companies Law Cap. 113 (the “Law)” a private company, is a company which by its articles of association (a) restricts the right to transfer its shares; (b) limits the number of its members to fifty, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be, members of the company; (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company and (d) prohibits the issue of bearer shares.
 
The memorandum of association of a company usually contains an express power to borrow money for the purposes of its business and to give security for the loan by creating a mortgage or charge over its property.   If there is nothing to the contrary in the memorandum and articles of association of the company, a power to borrow includes the power to charge the uncalled capital of the company.   A company’s powers to borrow and issue debentures are usually exercised by its directors (usually by a resolution).  
 
The term “debenture” is any instrument creating or acknowledging a debt/an indebtedness whether issued by an individual or a company.   A debenture may be secured or unsecured and is always for a specific sum, which can only be transferred as a whole.   A debenture need not necessarily be under seal.  A debenture may or may not provide for the repayment to the lender/holder.  If this is the case then the debenture will be perpetual.
 
The ordinary form of debenture contains at least four clauses on its face:
 
  1. a promise by the company to repay the principal on a certain date
  2. a promise to pay interest in the meanwhile
  3. a charge on the company’s assets and 
  4. a provision that the debenture is issued with the benefit of and subject to certain conditions which are frequently indorsed thereon.
 
Registration of debenture holders
 
Section 83 of the Law provides that every company shall keep at its registered office a register of holders of debentures of the company: 
 
Provided that a company may keep such register at any other of its offices at which the work of making it up is done or, if the company arranges with some other person for the making up of the register on its behalf at the office of that other person at which the work is done, but in every such case the company shall send a notice to the registrar of companies of the place where the register is kept and of any change in that place.
 
Registration of charges created by companies registered in the Republic
 
Section 90 of the Law provides that every charge as well as every amendment, assignment or other change to it created after the fixed date by a company registered in the Republic and being a charge to which this section applies shall, so far as any security on the company's property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge together with the instrument, if any, duly stamped by which the charge is created or evidenced, are delivered to or received by the registrar of companies for registration in a manner required by this Law within 21 days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section the money secured thereby shall immediately become payable.  This applies to, inter alia, charges for the purpose of securing any issue of debentures. 
 
Section 90(7) of the Law further provides that where a series of debentures containing any charge to the benefit of which the debenture holders of that series are entitled pari passu is created by a company, it shall, for the purposes of this section, be sufficient if there are delivered to or received by the registrar, within 21 days after the execution of the deed containing the charge or, if there is no such deed, after the execution of any debentures of the series, the following particulars:
 
 
(a) the total amount secured by the whole series;
(b) the dates of the resolutions authorizing the issue of the series and the date of the covering deed, if any, by which the security is created or defined; 
(c) a general description of the property charged; and
(d) the names of the trustees, if any, for the debenture holders, together with the deed containing the charge, or, if there is no such deed, one of the debentures of the series:
 
 
Provided that, where more than 1 issue is made of debentures in the series, there shall be sent to the registrar for entry in the register particulars of the date and amount of each issue, but an omission to do this shall not affect the validity of the debentures issued.
 
Duty of company with regard to charges and mortgages created 
 
According to Section 91 of the Law provides that it shall be the duty of a company to send to the registrar of companies for registration the particulars of every charge created by the company and of the issues of debentures of a series requiring registration under section 90, but registration of any such charge may be effected on the application of any person interested therein. If any company makes default in sending to the registrar for registration the particulars of any charge created by the company or of the issues of debentures of a series requiring registration as aforesaid, then the company and every officer of the company who is in default shall be liable to a default fine of €427.
 
Endorsement of certificate of registration on debentures
 
According to Section 94 of the Law, the company shall cause a copy of every certificate of registration to be endorsed on every debenture or certificate of debenture stock which is issued by the company and the payment of which is secured by the charge so registered.  If any person knowingly and wilfully authorizes or permits the delivery of any debenture or certificate of debenture stock which is required to have endorsed on it a copy of a certificate of registration without the copy being so endorsed upon it, he shall, without prejudice to any other liability, be liable to a fine not exceeding €854.

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