Published on 5th November 2021
While the overhaul of Companies law Cap.113 is pending the appointment of a designated law firm to undertake the task by a public tender expiring on 29th November 2021, the Government proceeded with two important amendments to Companies Law, on the 5th November 2021.
The two amendments namely Amendment No.3 by Law N.150(I)/2021 and Amendment No.4 by Law N.151(I)/2021 passed on 5th November 2021, aim to clarify the establishment, and operation of Variable Capital Investment Companies (“VCIC”) which represent the most frequent form of entities used for the set up of Alternative Investment Funds as well as provisions regarding the issuing of guarantees.
Amendment No.3 (N.150(I)/2021) provides for the following notable improvements:
- Offer to subscribe: new replaced section 46A clarifies that sections 28 to 45 do not apply for subscription to shares or debentures governed by the Prospectus and Public Offer Law, and/or Open-Ended Undertakings for Collective Investment Law and/or Alternative Investments Law, regardless of whether publication of the prospectus is required.
- Notification to the Registrar regarding conversion of the share capital of a VCIC: it is now clear that with new section 61 (1A) (a), that a VCIC may convert its share capital into shares without a nominal par value. The relevant notification notification and court order required under section 370ID, reflecting the change is filed with the Registrar of Companies.
- Information on VCIC included in an annual return: New provision in section 118 (1) (c) clarifies that the information required to be included in the annual returns of non-VCICs are not required in those of VCICs.
- Strike off for VCICs that fail to submit special resolution with the Registrar: New subsection 2A (c) of section 327 provides that failure to submit the special resolution complying with section 370IE within 12 months from 5/11/2021 (date Amendment No.3 came into force), will result in the VCIC being struck off by the Registrar.
- Section 361A is amended by reference to the Open-Ended Undertakings for Collective Investment Law and/or Alternative Investments Law.
- Part “XA” of Companies Law is amended extensively by the introduction of elaborate provisions defining and regulating the establishment and operation of VCICs. More specifically new section 370A clarifies that the word “VCIC” in sections 370A until 370IZ refers to a limited liability company by shares and the word “company” is interpreted accordingly.
- Content of the Memorandum of Association of a VCIC: New section 370B provides that the VCIC’s:
- Share capital is equal to the current value of the issued share capital of the company;
- Share capital is divided to the fixed number of shares without any par value and
- The current number of issued shares is not smaller than the lowest number fixed in the memorandum of association and in case the share capital is divided into different classes of shares, the class or classes of shares that represent the lowest number mentioned above: a provided the lowest number of shares corresponds with the lowest original share capital as provided by the Open-Ended Undertakings for Collective Investment Law or Alterative Investments Law.
- A new model of a Memorandum and Articles of Association for VCIC is now incorporated in Companies Law Part I Model E.
- Companies Law for VCIC brought in line with investment laws:
- Section 370G (1) expressly provides that any new VCIC must correspond and comply with the provisions of the Open-Ended Undertakings for Collective Investment Law and the Alternative Investments Law.
- 370G (2) clarifies further that any amendments to the constitutional documents of a VCIC by the Registrar of Companies are subject to the prior approval of the Cyprus Securities and Exchange Commission;
- Provisions on the real value of a VCIC by reference to its share capital and reserves: New Section 370D defines the way in which the actual value of a VCIC is calculated:
- Actual value of the issued share capital equals always with the value of its assets minus liabilities; and
- The Company’s shares may be bought back by the company by any holder’s request directly or indirectly, using the company’s assets provided the number of issued shares does not reduce to below the lowest number indicated in the company’s memorandum of association.
- Steps equivalent of buy-back: Any steps taken by a VCIC to ensure that its trading value does not materially deviate from the net asset value at a higher percentage than that defined in its memorandum of association are equivalent of a buy-back of its shares. The difference between a VCIC’s trading value and its net asset value cannot surpass 5% of its net asset value.
- New definitions in section 370Z: “company limited by shares” is now interpreted to include a VCIC, “nominal value of a share” is now interpreted to mean the asset value of a VCIC following deduction of its liabilities and divided by the number of issued shares and “share capital of a limited liability company by shares” is now interpreted to refer to the asset value of a VCIC following deduction of all its liabilities.
VCIC’s power to buy-back its own shares: new section 370H clarifies the manner in which buy-back can take place including requirement that shares are first fully paid, and that buy-out will not result in the creation of a reserve account (contrary to what applies to the redemption of redeemable preference shares).
Amendment of a VCIC’s Memorandum:
- section 370Θ provides that amendments to the number of shares, lowest number of issued shares and any class shares can take place by ordinary resolution.
- Copy of the resolution and relevant notification attaching a copy of the amended memorandum to be filed with the Registrar of Companies within 1 month of the amendments
The amendments to Companies Law on the specific sections were long overdue, in order to smooth out and streamline the applicability of the law governing the incorporation of VCIC with the laws governing the operation of the vehicles using the VCIC for investment purposes (Open-Ended Undertakings for Collective Investment Law and Alternative Investments Law). The introduction of model articles as well as the manner in which the value of a VCIC share capital can be determined will solve many procedural and operational problems for providers and clients alike.
Amendment No.4 with Law No. 151(I)/2021, concerning guarantees most notably provide as follows:
- Section 299 is amended as follows:
- Reservation in subsection (8) (a) (ii) is struck off and
- Subsection (9) is replaced in its entirety with a new subsection which clarifies that the debts referred to in the above subsection (8) concern agreements of guarantee signed by the date Amendment No.2 Law of 2018 and apply throughout the period started on or after the date Law Amendment No.3 of 2015 came into force.
- The present amendment has a retroactive effect as of 13th July 2018.
- Transitional provisions are made by reference to court orders issued in the context of liquidation following the 13th July 2018 but before the publication of the present law in the official gazette, so that Civil Procedure Rules are applied.
For any information or clarifications regarding the latest amendments to the Cyprus Companies Law Cap.113, feel free to contact Stella Koukounis or Chara Paraskeva at [email protected]