PART 1
February 2011
DEALING WITH A BANKRUPT’S PROPERTY IN CYPRUS
In 1974 the country of Cyprus was effectively split into two parts. The northern part of the island is the self declared ‘Turkish Republic of Northern Cyprus’ (often simply referred to as ‘Northern Cyprus’). This ‘country’ is not recognised by the UK and, so far as the UK is concerned, the island forms one country – the recognised Republic of Cyprus. This single country is a member of the EU so, technically, the northern half of the country is in the EU. It is unlikely, however, that this position will be recognised by the authorities in the northern part of the island so the ‘tools’ available to the official receiver available under the EC Regulation on Insolvency Proceedings 2000 discussed elsewhere in this chapter will not be available where the property is in the northern part. In such circumstances the advice of Technical Section should be sought.
43.6.3 Property disputes arising from the partition of the island
The partition of the island in 1974 (see paragraph 43.6.2) was largely on ethnic grounds, with Greek Cypriots moving to the southern part of the island and Turkish Cypriots to the northern part. The partition was not planned and many people had to leave their properties suddenly and unexpectedly. This has led to many court cases where those that abandoned properties in 1974 (often, under the fear of violence) are now seeking redress through the courts in order to regain the properties they left. Generally speaking this will involve a Greek Cypriot as it was that group that found the greatest need to leave suddenly.
The Department of Lands and Survey (see paragraph 43.6.16) continues to register property rights in northern Cyprus so, where the official receiver, is dealing with the affairs of a Greek Cypriot who claims an interest in a property in northern Cyprus, he/she should ensure that his/her interest is noted by The Department of Lands and Survey (see paragraph 43.6.15).
43.6.4 Law applicable to dealing with properties in Cyprus as assets of the bankruptcy estate
The EC Regulation on Insolvency Proceedings 2000 (‘the EC Regulation’) (see Chapter 41) generally provides that the law applicable to the bankruptcy is that of the Member State in which the bankruptcy order was made [note 1] (see paragraph 41.51).
There are, however, exceptions to this general rule, which exceptions include special provisions in the case of property. In particular, the opening of the proceedings does not affect third parties’ ‘rights in rem’ to property. ‘Rights in rem’ are the rights of a creditor or third party in respect of assets belonging to the debtor which are situated in another Member State at the time of the opening of the proceedings [note 2].
43.6.5 Protection of the rights of chargeholders
As outlined at paragraph, the EC Regulation provides that ‘rights in rem’ are subject to an exception to the general rule regarding choice of law.
Broadly speaking, ‘rights in rem’ include security rights such as a mortgage, and the EC Regulation provides that it is the law of the country in which the property subject to security that would take precedence when considering the effect of the proceedings on those rights.
To comply with the EC Regulation the official receiver, in his/her capacity as trustee of the bankrupt’s estate will have to follow Cypriot law when dealing with the rights of chargeholders.
43.6.6 Properties in Cyprus as assets of the bankruptcy estate
The Act provides that property, wherever situated in the world, forms part of the bankruptcy estate [note 3] [note 4], and the Act gives the trustee a power of sale over the property [note 5].
It is clear, therefore, that property in Cyprus belonging to the bankrupt would form part of the bankrupt’s estate and should be realised as appropriate, following the guidance in this Part.
43.6.7 Ensure that value of property justifies action taken to protect/realise
As with any other property, the official receiver, as trustee, should ensure that the value of the property to the estate justifies any action taken, or expense incurred, in relation to the protection or realisation of the property.
It is accepted that this may be something of a circular matter, in that it may be necessary to incur some expense to find out that the property has no value.
43.6.8 Ascertaining the value to the estate of a property in Cyprus
In simple terms, the calculation of the value of a Cypriot property to the estate involves the same process as would be required for a property in England and Wales (that is, the value of the property less any secured charges). What may be more difficult is the obtaining of accurate information regarding the value of the property and the amount and level of any outstanding charges.
43.6.9 Obtaining information regarding the value of a property in Cyprus from the bankrupt
The most likely source of information regarding the value of the property will be from the information or documentation provided by the bankrupt, for example:
43.6.10 Other sources of information regarding the value of a property in Cyprus
As in the UK, there are websites that give the prices of properties that are for sale and examples are given here:
http://www.cypruspropertyagents.com/
http://cyprus.themovechannel.com/
It is possible that a local estate agent may be prepared to offer an opinion. An agent may be located by region on the following website:
http://www.skek-creaa.com/english/members.htm
43.6.11 Where accurate valuation of property required
Where it is necessary to obtain an accurate value of the property the official receiver, as trustee, may consider appointing a Cypriot surveyor. As this service is likely to attract a fee the official receiver should consider the necessity of the valuation against the likely benefit to the estate. A surveyor may be located on the following website:
http://www.rics.org/findasurveyor
43.6.12 Establishing the position of charges against the property
It is likely that, as with a UK property, the official receiver, as trustee, will be able to establish what charges there are against the property from documentation or information provided by the bankrupt.
Assuming the identity of at least one of the secured chargeholders is known, they can be written to in the normal way (see paragraph 43.6.14) to obtain details of the amount outstanding under their charge and the identity of any other chargeholders. Such an approach should be accompanied by a completed data protection act disclosure authority signed by the bankrupt (see paragraph 43.6.22) to avoid any refusal to provide information under jurisdictional differences.
43.6.13 Protecting the official receiver’s interest in the property
In the first instance, the official receiver should contact any chargeholder and request that they note the official receiver’s interest in the property (see paragraph 43.6.14).
In addition to informing the chargeholders of the making of the bankruptcy order, it will be necessary to register the official receiver’s interest in the property at the land register office (see paragraph 43.6.15).
43.6.14 Contacting the chargeholder
Annex 1 is an MP2 letter (seeking information from a chargeholder) that has been amended to be more relevant in respect of a Cypriot property.
Annex 2 is an MP3 letter (requesting the chargeholder to note the official receiver’s interest in the property) that has been amended to be more specific in respect of a Cypriot property.
43.6.15 Protecting the property at the land registry
The official receiver, as trustee, should take steps to ensure that his/her interest in the property is recorded at the Cypriot national land registry (see paragraph 43.6.16). This will stop any unauthorised dealings in the property.
He/she can achieve this by registering a notice with the land registry that bankruptcy proceedings in England and Wales have commenced. This is provided for in the EC Regulation [note 6] and under Cypriot law [note 7].
Annex 3 is a letter that official receivers may use to effect such registration. The letter at Annex 3 should be accompanied by a legalised original of the bankruptcy order (see paragraph 43.0.49).
43.6.16 Registration of property at the land registry
The Department of Lands and Survey in Cyprus (DLS) is a government department which was set up in 1858. One of its main responsibilities is the registration of immovable property on the whole island of Cyprus. The District Lands Office of the DLS accepts and completes all kinds of applications concerning property transfers, mortgages, forced sales, tenures, registration, valuation, management of state lands, surveying, mapping, issuing of property titles and issuing copies of plans and maps.
43.6.17 Searching the land register
The Director of the DLS may provide any interested person with any information in the Land Register, or in any other file or book kept with any District Lands Office [note 8]. This information is provided in the form of a certificate, called a "search certificate". A search certificate is issued only after the respective application has been filed. The application forms are accessible via the web site but are only available in Greek. Instead, the official receiver should use the letter attached to this Part as Annex 4.
When the official receiver makes an application for a search certificate, it is necessary to include the required fees (http://www.moi.gov.cy/moi/dls/dls.nsf/dmlservicescharges_en/dmlservicescharges_en?OpenDocument.
It is recommended that the official receiver specifies the relevant village and/or quarter for which a search is required.
Land Registry - Department of Lands and Surveys,
29 Michalakopoulou Street
1075 Nicosia
Cyprus
Tel : 00357 280 4900
Fax: 00357 280 4881
http://www.moi.gov.cy/moi/dls/dls.nsf/dmlindex_en/dmlindex_en?OpenDocument
43.6.18 Realising the interest in the property – transfer to the LTADT
As with a property in England and Wales, the official receiver may seek to transfer dealings in relation to the property to the appropriate LTADT as soon as possible after his/her interest in the property has been protected (see paragraph 43.6.13). This may be the only action that can be taken in relation to property in the occupied part of Cyprus if the property is Greek owned and occupied by a Turkish family (see paragraph 43.6.3).
43.6.19 Realising the interest in the property
As outlined in paragraph 43.6.4, the Act gives the official receiver, as trustee, the power to take possession of and sell a property that forms part of a bankrupt’s estate [note 9]. Under the provisions of the EC Regulation [note 10] [note 11] the official receiver must have respect for domestic (Cypriot) law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Cypriot law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Cypriot law in regards to the conveyance of the property.
It is not expected that the official receiver should enter into such a procedure without expert guidance from a lawyer (probably based in Cyprus) well versed in Cypriot law (see paragraph 43.6.20).
43.6.20 Instructing a local solicitor
It is not envisaged that official receivers should attempt to deal with the sale of a property in Cyprus directly, and it is recommended that local legal representation is obtained to deal with the particular aspects of Cypriot conveyancing and insolvency procedures (see paragraph 43.6.21).
Solicitors engaged by the official receiver in this country may be able to recommend a solicitor in Cyprus with which they have some connection or arrangement.
43.6.21 Locating a solicitor in Cyprus
All solicitors ('dikigoris') in Cyprus have to be registered with the Cyprus Bar Association. The website of that organisation (http://www.cyprusbarassociation.org/) may assist the official receiver in locating a solicitor to assist.
The website of the Law Society has a database of lawyers that may be searched by location and specialism:
http://www.lawsociety.org.uk/choosingandusing/findasolicitor.law
Alternatively, the British Consulates in Cyprus may be able to recommend a solicitor (http://ukincyprus.fco.gov.uk/en/).
It may be the case that any Cypriot organisation from whom the official receiver seeks information will cite data protection as a reason for not providing the requested information.
In this case, the official receiver should have the bankrupt complete the data protection subject access form [note 12] and send that to the relevant organisation with a renewed request.
43.6.23 Disclaiming the property
The official receiver, as trustee, may issue a disclaimer of the property, but only if the property has some onerous obligation attached to it (such as an obligation to repair, maintain, make safe, insure for public liability or make secure) and, as a result, has no value to the estate.
An obligation that official receivers may particularly encounter when dealing with a Cypriot property is the obligation to pay service charges, maintenance charges, community charges, or similar – which may attach to the property.
Annex 5 is a document which explains the purpose and effect of a disclaimer and which should be included with the notice of disclaimer when served on the interested parties.
See Chapter 34 for advice regarding the process of disclaiming.
Timeshares are dealt with in detail in paragraphs 31.3.52 to 31.3.55 and the Case Help Manual part ‘Timeshares’. In short, the basic principle for dealing with a timeshare is that it should be valued (using the services of one of the companies whose details are given in the Case Help Manual part, or a company providing similar services), taking into account any outstanding finance or service charges, and realised as appropriate.
43.6.25 Abandoning the property (amended July 2013)
Where there is no prospect of the property achieving equity sufficient to make realisation worthwhile, the official receiver, as trustee, may cease to take any active steps in dealing with the property – effectively, ‘abandoning’ the property to the mortgagees. Where the property’s value is affected by some onerous obligation (to insure or make the property safe, for example) a disclaimer would be the more appropriate course of action (see paragraph 43.6.23).
Where this position is apparent prior to the process of registering his/her interest at the Land Registry (see paragraph 43.6.15), the official receiver may discontinue that process. The official receiver should, though, ensure that his/her interest in noted by the mortgagees in the event of a surplus arising.