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Charges created by a company
By George Coucounis

The companies in the course of their business obtain credit or other facilities for which they create, by way of security, a mortgage or a charge over their immovable or movable property or other assets. The mortgages and memos burden immovable property, whereas the charges can be a charge for the purpose of securing any issue of debentures, a floating charge on the undertaking - business or property of the company, a charge on goodwill, patent, trademark or license, a charge on any other movable property created or evidenced by an instrument where the company retains possession of such property or a charge on immovable property, wherever situated, in Cyprus or abroad, or any interest therein. In such a case, the Companies Law imposes a duty upon the company and its officers to record a mortgage and register a charge with the Registrar of Companies within 21 days after the day of their creation. The main purpose of the registration is to secure the interests of the creditors, since any charge created but not registered will be void against the liquidator and any creditor of the company. However, with regard to mortgages, the law, in the expression of “charge”, does not include any mortgage of immovable property registered under any other law.

The default in the registration of any charge created by the company affects its creditors, since such charge will not be valid in the event the company goes into liquidation. Moreover, there is priority of the charges according to the date of their registration and the assets to be liquidated will be used only to satisfy any registered charges in accordance with the date of their registration. The validity of a mortgage, a memo, a sale contract or any other estate in land created over an immovable property of the company and registered at the Land Registry is not affected when it is not recorded with the Registrar of Companies, since these were registered under the provisions of other laws. If a company makes default in complying with the duty to register, record or cancel a charge or a mortgage, the company and its officers in default will be liable to a fine.

When a company omits to register a charge or to record a mortgage or cancel them within the time specified in the law, there is a remedy by filing an application to the Court to secure an order extending the time for the registration, recoding or cancellation to be effected. Such an application can be made by the company or the creditor and there is a need to satisfy the Court that the omission was accidental or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company and that it is just and equitable for the Court to grant relief. The Court in issuing the order may impose a term that the registration or the recording will not take effect retrospectively as from the date of the creation of the charge, but from the date of its registration. Thus, such an order will not affect the priority acquired by any other creditor who has already registered his charge.

The registration of a charge and the recording of a mortgage can be done by the company or the creditor who is entitled to charge the company with the relevant fee payable to the Registrar of Companies. The Registrar issues a certificate regarding the registration of any charge stating the amount thereby secured and the certificate shall be conclusive evidence that the requirements of the law as to registration have been complied with. The register and record kept by the Registrar is open to inspection by any person on payment of a certain fee. If the Registrar refuses to register a charge, such as the assignment of a sale contract, his decision cannot be the subject of recourse under article 146 of the Constitution, since the issue refers to civil rights over properties in the sphere of the civil law and not the public law.

George Coucounis is a lawyer specializing on the Immovable Property Law, Leading Partner in George Coucounis LLC based in Larnaca - Cyprus
 
www.coucounislaw.com - E-mail: coucounis.law@cytanet.com.cy - Tel: +357-24818288.
 
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