Pursuant to section 130 of the Cyprus Contract Law Cap. 149 (the “Law”) a pledge is the delivery of goods for the purpose of securing payment of a debt or delivery of a promise.

The Law prescribes a number of formalities which must be satisfied for the formation of a valid pledge over the shares of a Cyprus company, more specifically:

  1. The pledge agreement must be in writing;
  2. The pledge agreement has to be signed by the pledgor in the presence of two witnesses;
  3. The share certificates representing the pledged shares must be delivered to the pledgee;
  4. Notice of the pledge, together with a certified copy of the pledge agreement must be given by the pledgee to the Company whose share capital has been pledged;
  5. The Company must make a Memorandum of such pledge in the Register of Members of the Company;
  6. The Company issues to the pledgee a certification confirming that such Memorandum has been made.

ENFORCEMENT OF A PLEDGE:

It is possible for a pledge to be enforced, in the event of default, without court intervention, through the implementation of a number of blank documents which are delivered under the pledge. More specifically, it is standard practice, in the case of a pledge of shares, to put the following blank documents in place and deliver same to the pledgee, together with the execution of the pledge agreement itself:

  1. Blank undated and executed by the pledgor, instrument of transfer of shares for the transfer of the pledge shares;
  2. Blank undated and executed by the directors of the Company whose share capital is being pledged, resolution approving of the transfer of the pledged shares;
  3. Blank undated and executed waiver letters from the existing shareholders of the Company waiving their rights of pre-emption in relation to the said transfer of shares;
  4. Blank undated and executed resignation letters from the directors and secretary of the Company;
  5. Signed, dated and executed undertaking by the directors and secretary of the Company that they will not act contrary to the provisions of the pledge agreement;
  6. Signed, dated and executed Irrevocable Proxy and Power of Attorney issued by the pledgor in the name of the pledgee.

The delivery of the abovementioned blank documents acts as a self-enforcement mechanism to enforce a pledge without the need of judicial enforcement.

For further information or advice contact our team – info@papakyriacoulaw.com