The economic downturn in recent years has resulted in the increase of natural persons declaring their businesses insolvent. Legislation that governs insolvency is based on Chapter 5 of the Insolvency Law according to the recent amendments of the law.
The purpose of bankruptcy is to proclaim that an individual is unable to repay their outstanding debts and through the bankruptcy process any assets will be allocated as compensation to any creditors that are owed money. For a natural person to declare their voluntary admission of bankruptcy an application on certain conditions that satisfies the law has to be made to the relevant jurisdiction of the Court, since being unable to pay your liabilities is not the only evidence that is inspected by the Court.
However, another method of declaring a natural person insolvent and perhaps the most common is an application by an unhappy creditor to the Court to safeguard any outstanding liabilities.
The Court for the purposes of regulating and disposing of any assets will issue what is known as a receipt of decree. The decree protects the assets of the debtor and an official receiver will be appointed to audit the financial position of that debtor.
The most asked question is to the process involved in being re-instated to a status of credit worthiness.
According to existing insolvency legislation an individual is permitted at any time after the declaration of bankruptcy to make the relevant application request to the Court. The Court will initially inspect the Receivers report and examine the nature of the debts that includes the conduct of the involved individual. The Court may at its discretion then issue or refuse an absolute decree of rehabilitation, suspend the validity of the Ordinance for a given time period, or issue a decree of rehabilitation under conditions that refer to any earnings or income that may later be to the benefit of the insolvent individual.
The debtor may not influence his insolvency position that could affect any of the assets involved and could result in the Court denying their restoration and suspending the validity of the decree.
In important amendments the Bankruptcy Law of 2015 (n. 61 (I)/2015) introduced the automatic restoration of insolvent persons. In accordance with the newest data there has been a noticeable reduction of persons being added to the insolvency register due to this new legislative framework.
Before the amendment, the bankrupt individual was automatically restored within a time period of 4 years. However with the amendment, restoration is possible within 3 years from the date of the bankruptcy ordinance. Nevertheless, part of the estate may remain under the management of the official receiver or administrator for the benefit of the creditors or guarantors that become non-secured creditors. The insolvent individual has to fully co-operate with the official receiver or administrator until there has been a full and final settlement of all liabilities.
The amended law secures creditors since it does not release the debtor from any liabilities until there has been a settlement of all liabilities that includes preferential debts, public debts, judicial fees etc.
The legislation was amended in Cyprus owing to the recession and the global crisis. The declaration of bankruptcy had become a lever to avoid debts and had consequently caused huge economic losses to creditors. Present legislation protects and safeguards financial losses incurred from the bankruptcy act of a natural person.
The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on each particular case.
For any further information, please contact Mr Savvas Savvides.