Pledging shares in Cyprus companies - security enforceable out of court

Pledging shares in Cyprus companies - security enforceable out of court

Anastasios Antoniou

Anastasios Antoniou

August 31, 2021 03:35 AM

A pledge over shares in a Cyprus company is an efficient form of security granted as collateral in commercial transactions, which can be enforced outside of court. A pledge creates a possessory security interest in the shares for the benefit of the creditor until outstanding obligations are fulfilled by the debtor.

Creditors should ensure that pledge agreements and deliverables are compliant with statutory formalities and procedures to ensure the enforceability of a security.

Creation of a pledge over shares

Strict adherence to statutory requirements concerning the creation of the pledge is imperative for the validity of the pledge. These include:

  • Execution formalities – a pledge must be made in writing, signed by the pledgor and signed in the presence of two witnesses with contractual capacity
  • Delivery of notice of pledge – a notice of pledge together with a certified copy of the pledge agreement must be delivered by the pledgee to the company whose shares are being pledged
  • Memorandum of pledge – a memorandum of the pledge must be entered in the register of members of the company whose shares are being pledged in respect of the pledged shares
  • Certificate of pledge – a certificate must be delivered to the pledgee that a memorandum of pledge has been entered in the register of members of the company whose shares are being pledged, evidencing the pledge.

The pledge agreement governs the pledge and sets out the requirements under the pledge, its deliverables and the enforcement mechanics in an event of default.

A pledge of shares under Cyprus law, is a possessory security and grants to the pledgee (the Lender) possession but not any right of ownership. The creditor retains possession of the pledged property (the share certificates) until the obligations of the borrower under the Pledge Agreement have been fulfilled.

Pledge enforcement

In the event of default, normal practice is that, on providing reasonable notice to the pledger, the pledge is enforced. The enforcement of the pledge takes place through implementation of the documents delivered under the pledge, without the need for judicial enforcement.

If the pledgor defaults on its obligations, the pledgee is entitled to sell the shares and retain the amount of the debt due. The pledgee has a duty to account to the pledgor for any surplus realized in excess of the secured amount.

A creditor enforcing by way of sale owes a duty to act in good faith and to take reasonable steps to obtain the best price possible. A prudent pledgee would request an independent valuation to demonstrate that it has discharged its duty to obtain a fair price.

A creditor must ensure it has immediate and unhindered access to enforce a pledge and sell the pledged shares in the event of borrower default. At a minimum, a creditor should determine whether there are provisions in the articles of the company (e.g. pre-emption rights or special transfer processes) which may need to be amended to ensure that the creditor’s enforcement mechanism under the pledge is effective.

Anastasios A. Antoniou
Advocate (Cyprus) | Partner

Christina McCollum
Solicitor (England and Wales) | Partner

Antoniou McCollum & Co. LLC | Tel: +357 22 053 333 |

Related Articles

Blurred Lines

by Andrew Kirby

Where does responsible lending end and unconscionability begin? Australian courts have come to vastly different conclusions. An overview of current case law.

Australian Courts Assess Loan Repayment

Trending Articles

A Celebration of Excellence: The Best Lawyers in Canada 2024 Awards

by Best Lawyers

As we embark on the 18th edition of The Best Lawyers in Canada™, we are excited to highlight excellence and top legal talent across the country.

Abstract image of red and white Canada flag in triangles

The Long, Short, Thick and Thin of It

by Avrohom Gefen

“Appearance discrimination” based on employees’ height and weight is the latest hot-button issue in employment law. Here’s a guide to avoid discrimination.

Woman stands in front of mirror holding suit jacket

Trailblazing Titans of the Industry: Announcing the 4th Edition Best Lawyers: Ones to Watch® in America

by Best Lawyers

Best Lawyers honor and celebrate these talented, innovative newer lawyers who are trailblazing their way to victories in courtrooms across the country.

Connected web above map of the U.S.

Announcing the 2023 The Best Lawyers in America Honorees

by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Pearls of Wisdom: Celebrating 30 Editions of Best Lawyers’ Rankings

by Best Lawyers

In celebration of our landmark 30th edition, Best Lawyers’ leadership explains how the world’s original and most trusted legal awards maintain their esteem, integrity and reputation for excellence among the top legal entities and their clients.

Best Lawyers logo for 30th edition release with gold glitter in background

Vanguards of Victory: Best Lawyers: Ones to Watch in Canada 2024

by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in Canada™ has been announced, and the lawyers showcased by these awards are rising to the challenge each day as advocates for clients all across the country.

Blue and black background with small squares connected by lines

Best Lawyers: Ones to Watch in America for 2023

by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

Announcing the 2023 The Best Lawyers in Canada Honorees

by Best Lawyers

The Best Lawyers in Canada™ is entering its 17th edition for 2023. We highlight the elite lawyers awarded this year.

Red map of Canada with white lines and dots


Thomson Rogers: Toronto Personal Injury Lawyers

by Thomson Rogers

Since establishment in 1935, Toronto-based firm Thomson Rogers has consistently delivered results for their clients struggling through complex litigation.

Top of a Staircase Featuring Two Large Black Doors with Bookshelves and Chairs on Each Side

The Best Lawyers in South Africa™ 2023

by Best Lawyers

Best Lawyers proudly announces lawyers recognized in South Africa for 2023.

South African flag


How Long Does a Felony Stay On Your Record in California

by Peter Blair

A felony can remain on your record for life in California. Some felonies qualify for expungement. Learn how to remove a felony conviction from your record in California.

Hand setting bird free out of a guarded fence

What the Courts Say About Recording in the Classroom

by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

Incendiary Behavior

by Lyssa A. Roberts and Rahul Ravipudi

California’s future will see more frequent wildfires caused by faulty equipment. Litigation tied to recent Golden State infernos shows the way forward.

Mountain range with glow of wildfires behind it

Announcing the 2022 Best Lawyers® in the United States

by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

The Upcycle Conundrum

by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Famous Songs Unprotected by Copyright Could Mean Royalties for Some

by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?