A pledgee, under a Cypriot law pledge, who has in its possession the so called the Self-Enforcement Documents (i.e. original certificate of pledged shares, original duly signed and undated instrument of transfer of shares, original duly signed written resignations of the directors/secretary of the company, whose shares have been pledged to the pledgee, undated certificate duly signed by the secretary, that all filings to be made by new secretary are in compliance with the registers of the company etc.) is usually given by the terms of the relevant pledge agreement, the right and power, upon the happening of an Event of Enforcement, to inter alia proceed, without any further written notice to the pledgor, to put into effect the Self-Enforcement Documents, and to transfer the legal title of the pledged shares to the name of the pledgee or to its nominee, and to replace the directors and secretary of the company, whose shares have been pledged.

Upon the completion of such transfer of the pledged shares to the name of the pledgee or its nominee, the pledgee under Cyprus law, holds the pledged shares, as an equitable mortgagee, and not as an absolute owner, subject to the equitable right of the pledgor to redeem, by settling all the secured obligations under the pledge, including any expenses of enforcement of pledge.

As long as, the pledgee does not proceed to give a reasonable written notice as per Section 134 of Contract Law CAP. 149 to the pledgor, about its intention to proceed to sell the pledged shares by public auction, or private treaty, provided a valuation of same was prepared by a reputable valuer, and to actually sell such pledged shares, the pledgor's equitable right to redeem exists, and it cannot be rejected by the pledgee.

The best and more secure method of selling pledged shares (provided the terms of the pledge permits same), is through a public auction, to be conducted in a proper manner, and transparently, and after obtaining of at least one (1) valuation of the pledged shares from a reputable valuer.

The pledgee or its nominee, cannot acquire or purchase the pledged shares, through a private treaty, because such a transaction can be questioned by the pledgor as constituting a conversion, exposing the pledgee to liabilities.

A pledgee or its nominee, can participate in a properly and transparently conducted public auction of the pledged shares, and it can legally acquire same, without its ownership of the pledged shares to be subject to the equitable right of pledgor to redeem.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.