Charges and mortgages are two instruments that ensure creditors’ protection. Precisely, all creditors need to ensure that they will receive payment for their services or that their loan will be repaid. Charges give the right to creditors to resort to identified property, immovable property or personal property, in order to satisfy the debt or other liability in the case it has not been paid. It should be taken into account that neither possession nor ownership passes to the creditor. On the other hand, under a mortgage of immovable or personal property, the mortgagor possesses the mortgaged property. In the case that the debt has not been repaid then the creditor obtains title/ownership for the particular property.
A charge is similar to a mortgage. Basically, a charge embraces all the rights of a mortgagee without transferring ownership. Charges may emerge as a result of an agreement or by operation of law. It should be clarified that express charges can be either fixed or floating. A fixed charge is created over certain assets. Regarding immovable property, an express charge is still called “mortgage”. However, an express charge has substituted the use of the traditional mortgage.
Except for immovable property and capital assets, fixed charges are not applied to assets such as merchandise since there are regularly being replaced. In this case, fixed charges need to be continually created and released which is not practical. On the other hand, a “floating” charge can be created over all the assets of the company from time to time, or maybe one class of assets, i.e. stock in trade.
In Cyprus, registration of charges is regulated by the “The Companies Law” (Cap. 113). Specifically, the provisions of sections 90(1) and 90(2) of the Companies Law cover all the necessary procedures that need to be followed so that to proceed with registration of charges. According to Section 90(1), charges need to be registered with the Registrar of Companies. If they are not registered, they are not valid.
Base on the provisions of section 90(2) the section 90(1) applies to the following charges:
a) a charge for the purpose of securing any issue of debentures;
b) a charge on uncalled share capital of the company;
c) a charge on book debts of the company;
d) a floating charge on the undertaking or property of the company;
e) a charge on calls made but not paid;
f) a charge on a ship or any share in a ship;
g) a charge on goodwill, on a patent or a licence under a patent, on a trade mark or on a copyright or a license under a copyright;
h) a charge on any other movable property created or evidenced by an instrument, where the company retains possession of such property;
I) a charge on immovable property, wherever situate, or any interest therein;
It should be underlined that in case the charge is created in Cyprus, then the period of registration is 21 days after the date of its creation. However, in case a charge is created out of the Republic of Cyprus including property situated outside of Cyprus, then the period of registration is 42 days after the date of its creation.
It should be stressed that the provisions of Section 90(2) do NOT apply to:
- pledges of shares in companies and rights deriving from it;
- agreements for the provision of financial collaterals within the context of the Financial Collateral Agreement Law, as may be amended and apply from time to time.
A company has a duty to report and maintain a register of charges:
A company is obliged to send to the Registrar of Companies the particulars of every charge created by the company and the issues of debentures of a series requiring registration under section 90. Nevertheless, the registration of any charge can be done during the application process by any interested person. If the registration is effected by some person other that the company, then that person has the right to ask the company to pay him/her back the amount of the relevant fees paid by him/her to the Registrar.
Furthermore, every company is obliged to maintain at the registered office of the company a register of charges and include all charges with all the necessary details. In case an officer of the company intensively and willfully authorises or allows the omission of any entry required to be made following the provisions of the Law, he/she will be liable to a fine up to €427.