Procedure relating to the issue of debentures in a Cyprus private limited company

A private limited company registered in Cyprus is prohibited by its articles from inviting the public to subscribe for any shares or debentures of the company.  The memorandum of association of a company usually contains an express term which allows the company 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.  A company’s powers to borrow and issue debentures are usually exercised by its directors (commonly by a resolution).

The term “debenture” is any instrument creating or acknowledging a debt 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.

Registration of debenture holders

Section 83 of the Companies Law Cap 113 (the “Law”) provides that every company shall keep at its registered office a register of holders of debentures of the company.

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 adequate if there are delivered to 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.

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.

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.