1. SETTING THE SCENE – SOURCES AND OVERVIEW
1.1 What are the main corporate entities to be discussed?
This chapter will focus on companies limited by shares since this is the most common type of corporate entity used in Cyprus. The Companies Law, Cap. 113, which is the main law in Cyprus, also regulates the governance of several types of companies, such as companies limited by shares or guarantee. For this chapter, it is important to note that companies limited by shares may be either private or public.
1.2 What are the main legislative, regulatory and other sources regulating corporate governance practices?
The main legislation which regulates the corporate governance of Cyprus companies is the Companies Law, Cap. 113, as amended (the "Companies Law"). The Companies Law was enacted in 1951 and it adopted almost identical companies law provisions with the English Companies Law of 1948. Additionally, common law principles such as fiduciary duties of directors and EU directives are applicable and implemented in Cyprus.
There are also the following additional laws which regulate publicly traded securities:
- The Cyprus Securities and Stock Exchange Laws of 1993–2020, as amended (and relevant regulations).
- The Cyprus Securities and Exchange Commission Law 73(I)/2009, as amended.
- The Takeover Bids law of 2007, Law 41(I) of 2007 as amended (the "Takeover Bids Law").
- The Investment Services and Activities and Regulated Markets Law, 144(I)/2007.
- The Transparency Requirements Law 190(I)/2007, as amended (the "Transparency Law").
- The Corporate Governance Code (5th edition), January 2019 (the "Code").
- The Market Abuse Law 102(I)/2016.
- The Encouragement of Long-term Shareholder Engagement Law 111(I)/2021.
The Cyprus Securities and Exchange Commission ("CySEC"), the Cyprus Stock Exchange ("CSE") and the Department of the Registrar of Companies and Official Receiver are the main regulatory bodies which supervise and/or issue directives and circulars to promote the correct implementation of the corporate governance legal framework.
CSE issued the Code in 2000 and it was recently amended in 2019. The main purpose of the Code is strengthening the monitoring role of the board of directors in listed companies, the protection of small shareholders, the adoption of greater transparency and the provision of timely information as well as the sufficient safeguarding of the independence of the board of directors in its decision-making. The Code provides some principles of corporate governance which, even though they are not exclusively designed for private companies, they are encouraged to use as guidance.
1.3 What are the current topical issues, developments, trends and challenges in corporate governance?
The Companies Law had recently been amended in order to modernise the filing and registration requirements and processes with the Registrar of Companies and Official Receiver so that its ability to supervise and regulate companies is improved. For example, there are now stricter late filing penalty provisions to ensure that companies comply with their obligations to provide information.
Further, due to the significant attention paid to anti-money laundering regulations worldwide and within the European Union, the European Parliament and Council have enforced the Fourth and Fifth Anti-Money Laundering Directives (Directive (EU) 2015/849 and Directive (EU) 2018/843), which obligate the Member States to take some stricter and more effective measures to achieve the purposes of the directives. One important change which is being implemented by the EU Member States, including Cyprus, is that the Registrar of Companies and Official Receiver will maintain a publicly available central register of the ultimate beneficial owners of companies that will hold adequate, accurate and current information on their beneficial ownership.
1.4 What are the current perspectives in this jurisdiction regarding the risks of short-termism and the importance of promoting sustainable value creation over the long-term?
The practices for corporate management and control of companies have been strengthened in recent years following intensified scrutiny measures adopted worldwide. Considering this, there are recent developments in the establishment of substance for Cyprus companies, which in effect could possibly result in more sustainable businesses in the long term.
In general, companies are supposed to demonstrate physical presence. Absence of business or operating premises, whether owned or rented, apart from a mailing address and also the lack of meaningful corporate initiative and management, are factors which indicate a lack of physical presence.
Proof of economic substance is also important for proving substantial activities of a company. A company having no established economic activity in its country of incorporation, little to no independent economic value and no documented proof to the contrary shows lack of substance of that company.
2.1 What rights and powers do shareholders have in the strategic direction, operation or management of the corporate entity/entities in which they are invested?
The operation and management of corporate entities is conducted by the board of directors. However, the shareholders, as the owners of the company, have certain rights in controlling and observing the value and development of the company. The Companies Law and the articles of association provide them with voting rights at general meetings of the company to determine and take actions for its development. In particular, resolutions of a 75% shareholder majority are required for the alteration of articles of association and memorandum of the company, reduction of share capital and winding up of the company. Further, the shareholders may vote for a variation of shareholders' rights, acquisition of its own shares, the appointment and remuneration of directors and auditors and the approval of dividends.
The Encouragement of Long-term Shareholder Engagement Law has introduced stronger shareholders' rights and facilitated cross-border voting (Articles 4–7) in relation to companies with a registered office in Cyprus issuing shares which are traded on a regulated market within the EU. In particular:
- a company can request identification of any shareholder which holds more than 0.5% of the share capital or voting rights. Any intermediary which holds such information must, if requested by the company, disclose it immediately. This facilitates direct engagement between the company and the shareholder;
- an intermediary is obliged to transmit information, which the company must disclose to shareholders (to enable them to exercise their shareholder rights), to the shareholders. Where this necessarily involves a chain of intermediaries, the transmission of information must take place without delay;
- shareholders may now participate and vote in the annual general meeting ("AGM") electronically rather than having to do so physically or via the use of a nominee;
- intermediaries are required to facilitate the exercising of shareholder rights;
- a shareholder(or their nominee) may, within three months of an AGM vote, obtain, upon request, confirmation that their votes have been validly recorded and counted by the company. This excludes a situation where that information has already been made available to them;
- intermediaries must publicly and separately disclose any charges they make in relation to the above; and
- the Law strengthens the existing legal framework in Cyprus governing remuneration reports via the introduction of a binding shareholder vote on remuneration policy and a requirement for enhanced disclosure in the remuneration report.
The Code provides principles regarding the relationship with the shareholders. It states that the board of directors should use AGMs to communicate with investors and encourage their participation in the annual general meetings. Furthermore, it provides that corporate governance practices should stem from the principle of equitable treatment of all shareholders and all categories of shareholders, and the procedures at general meetings should guarantee such equitable treatment.
2.2 What responsibilities, if any, do shareholders have with regard to the corporate governance of the corporate entity/entities in which they are invested?
The Companies Law does not impose any responsibilities on shareholders regarding corporate governance. As stated in question 2.1 above, the Code encourages (but does not impose) the participation of the shareholders in the AGMs of the company.
2.3 What kinds of shareholder meetings are commonly held and what rights do shareholders have with regard to such meetings?
The Companies Law and, in effect, the articles of association of a company, provide for two kinds of shareholder meetings which are commonly held, namely the AGM and the extraordinary general meeting ("EGM").
The Companies Law requires every company to convene its first AGM no later than 18 months after the date of incorporation and thereafter every year and no later than 15 months after the date of the previous AGM. Every general meeting, other than an AGM, which is convened during the year, is considered an EGM.
For every AGM, notice of at least 21 days must be given to all members unless all the members who are entitled to attend and vote agree to shorter notice. The main purpose of the AGM is to consider the financial statements, the auditors' and directors' reports, the appointment and remuneration of the directors and the auditors. Section 134 of the Companies Law requires the company to distribute, with notice given for the AGM, copies of any resolution proposed to be put to the AGM together with an explanatory statement from the proposer, provided that it is requested to do so by one or more shareholders together holding 5% of the rights to vote at the meeting or 100 or more shareholders together holding shares with a paid-up value, per member, of not less than 170 euros.
An EGM may be convened by the board of directors or requisitioned by shareholders holding at least 10% of the paid-up share capital which hold voting rights.
At general meetings, shareholders may take a decision pursuant to three types of resolutions, namely: ordinary (requiring a simple majority); extraordinary (requiring a 75% majority together with a prescribed notice period, unless a sufficient number of members agree to waive it); and special (requiring a 75% majority and 21 days' notice, unless a sufficient number of members agree to waive it). Shareholders have the right to vote in person or via a proxy holder.
Section 131 of the Companies Law safeguards the right to require a poll at general meetings and provides that any provision in a company's articles of association purporting to restrict it are invalid. Section 126A of the Companies Law requires companies listed in a regulated market to ensure equal treatment for all members who are in the same position with regard to the exercise of voting rights and participation in a general meeting.
2.4 Do shareholders owe any duties to the corporate entity/entities or to other shareholders in the corporate entity/entities and can shareholders be liable for acts or omissions of the corporate entity/entities? Are there any stewardship principles or laws regulating the conduct of shareholders with respect to the corporate entities in which they are invested?
The main obligation of the shareholders to the company is to pay the nominal value of their shares to the company. They do not owe any duties to the corporate entity or to other shareholders unless a shareholder agreement exists which governs such obligations and rights.
Additionally, Cyprus companies are separate legal entities, namely they are a "different person" from its shareholders and directors. Based on this principle, shareholders are not liable for the obligations of the company. Any liability that may arise against a shareholder is limited to the amount of contribution of shares in the company. If they have paid the amount of contribution they have no further liability in their capacity as shareholders.
As an exception to the above, the Companies Law and relevant case law has adopted some principles which allow the lifting of the corporate veil of a company and in such cases the shareholders may be held liable. Further, a shareholder may be held personally liable in case of fraudulent trading with the intention to defraud creditors during the course of winding up.
Cyprus has incorporated into the Companies Law the EU Directive 2007/36/EC of the European Parliament and of the Council, on the exercise of certain rights of shareholders in listed companies. The said Directive introduced some rights for the shareholders of listed companies which regulated their conduct such as attending and voting at general meetings from a distance, having access to relevant information and the opportunity to raise questions at meetings. In May 2017, the European Parliament and Council agreed to amend the said Directive. Cyprus has just transposed the amended framework in its legal order with the Encouragement of Long-term Shareholder Engagement Law (L.111(I)/2021), which is presented in more detail in other parts of this chapter.
Additional relevant information can be found in the answer to question 4.4.
2.5 Can shareholders seek enforcement action against the corporate entity/entities and/or members of the management body?
The rights and obligations of shareholders are regulated by the articles of association of the company. If there is also a shareholders' agreement, this contractually binds the shareholders which are parties to the agreement and the company (if it is a party to the agreement). Therefore if there is a breach of the articles of association and/or the shareholders' agreement, the relevant shareholder can instigate action against the company and/or against the other shareholders accordingly.
It is a general principle of company law that an individual shareholder is bound by the articles of association and cannot claim against the majority.
However, Companies Law provides shareholders with the right to seek a remedy from the courts when the affairs of the company are being conducted in a manner oppressive to some of the members (section 202) and to apply for a petition for the company to be wound up on the basis that it would be just and equitable under some circumstances (section 213).
In addition, minority shareholders have the right to bring a derivative action, namely a personal action against a director as the representative of the company, in instances such as fraud against the minority, negligence, default, breach of duty or breach of trust.
2.6 Are there any limitations on, or disclosures required, in relation to the interests in securities held by shareholders in the corporate entity/entities?
The Companies Law includes disclosure requirements aimed at informing those who do business with a company; for example, regarding maintenance of public registers of members, directors and secretaries, debenture-holders and charges, publication of statutory financial statements and the filing of annual returns. These are open to public inspection for a nominal fee.
The Transparency Law imposes requirements on publicly traded companies and shareholders regarding notification of increases in shareholdings or voting rights above an initial threshold of 5% and of subsequent movements above and below various specified percentages (10%, 15%, 20%, 30%, 50% and 75%).
2.7 Are there any disclosures required with respect to the intentions, plans or proposals of shareholders with respect to the corporate entity/entities in which they are invested?
The shareholders are not required to make such disclosures under the Companies Law.
However, according to the Takeover Bids Law, a person who makes a public bid should immediately announce his intention to make a public offer before the announcement of his final decision, if the matter has been revealed before he approaches the offeree company or its shareholders for the purpose of negotiating a potential takeover or if the fact that he is considering the possibility of submitting a bid is likely to become known to a large number of persons.
2.8 What is the role of shareholder activism in this jurisdiction and is shareholder activism regulated?
Even though shareholder activism is not commonly exercised in Cyprus, after the global economic crisis which also affected our country, the importance of shareholder activism is developing among corporate entities.
Overall, it seems that the shareholders and the corporate environment expect a higher level of transparency and accountability from the board of directors regarding the business of the company and its corporate governance.
The Companies Law, as stated above, provides some powers to the shareholders to get actively involved in the corporate governance of a company.
Section 126 of the Companies Law provides that shareholders holding at least 10% of the paid-up capital of the company with voting rights can request an extraordinary general meeting to be convened.
Section 127B of the Companies Law allows the members of a company, listed in a regulated market, holding at least 5% of the issued share capital that represents at least 5% of the total voting rights to apply to add items to the annual general meeting agenda (if each such item is accompanied by reasons which justify its inclusion or a draft resolution to be adopted in the general meeting) and to add a draft resolutions to the agenda of a general meeting.
Section 128C of the Companies Law provides that members of a company listed in a regulated market have the right to ask questions about items on the general meeting agenda.
As per section 134 of the Companies Law, companies, on request in writing of 5% of all members that have voting rights at that meeting or on request of not less than 100 members holding shares in the company, on which there has been paid up an average sum, per member, of not less than 170 euros, shall give to members of the company entitled to receive notice of the next annual general meeting, notice of any resolution which may properly be moved and is intended to be moved at that meeting and it shall circulate to members, entitled to receive notice of any general meeting, any statement of no more than 1,000 words with respect to the matter referred to in any proposed resolution or the business to be dealt with at that meeting.
Further, a company may remove any director by an ordinary resolution of members, according to section 178 of the Companies Law.
Finally, as stated in question 2.5 above, the shareholders may bring a derivative action or initiate legal proceedings against the company in certain circumstances.
3. MANAGEMENT BODY AND MANAGEMENT
3.1 Who manages the corporate entity/entities and how?
Management of the company is delegated to the board of directors. The Companies Law provides for a one-tier structure in which the board exercises its powers as a whole. There is no supervisory board or similar body envisaged in the Companies Law. Committees of directors may be established and individual directors can be empowered to represent the company by a board resolution or under a power of attorney given by the company. According to section 170 of the Companies Law, it is mandatory for a private company limited by shares to have at least one director on the board of directors while public companies must have at least two directors. The directors represent the corporate entities and they shall exercise their power bona fide and by exercising a reasonable duty of care.
The Code confirms the principle that a listed company should be governed by an effective board which provides guidance and controls the company. Section A.2 of the Code recommends that the board should comprise an appropriate balance of independent non-executive and other directors so that no individual director or a small group of directors can dominate the board's decision-making. It also provides that there should be a formal and transparent procedure for the appointment of new directors to the board of directors which should consist of competent and suitable individuals able to participate in the company's board of directors. The Code recommends the establishment of three specific committees of the board, in addition to any others, namely:
- a nomination committee;
- a remuneration committee; and
- an audit committee.
3.2 How are members of the management body appointed and removed?
The first directors are appointed either by being named in the articles of association or under a provision in the articles of association providing the subscribers to the memorandum of association the power to appoint them.
Subsequent appointments and removals of directors will be regulated by the company's articles of association. The default provisions contained in the specimen regulations included in the Companies Law will apply if the articles of association do not address a particular issue.
Section 178 of the Companies Law provides that a director may be removed before the expiration of his period of office by an ordinary resolution of the shareholders notwithstanding anything in its articles of association or in any agreement between the company and the director. The director has the right to make representations, both orally at the meeting at which the resolution is considered and in writing by a statement, which the company is required to distribute to shareholders in advance of the meeting. Any vacancy created by the removal of a director under section 178 may be filled at the meeting at which the director is removed or may be filled as a casual vacancy in accordance with the articles of association.
The Code calls for a formal and transparent procedure for the appointment of new directors, led by the nomination committee. The selection criteria should include the candidates' honesty and integrity, as well as their knowledge and experience. Directors should be subject to re-election by shareholders at the first annual general meeting after their appointment and at intervals of no more than three years thereafter.
3.3 What are the main legislative, regulatory and other sources impacting on compensation and remuneration of members of the management body?
As far as the Companies Law is concerned, directors' remuneration is left to be determined in the articles of association. The default provisions contained in the specimen regulations included in the Companies Law provide for directors' remuneration to be subject to approval by the annual general meeting. Section 181 of the Companies Law prohibits companies from paying a director remuneration, whether as a director or otherwise, free of income tax, or otherwise calculated by reference to or varying with the amount of the director's income tax liability. Section 188 of the Companies Law requires full details of directors' remuneration to be included in the financial statements presented to the general meeting for approval. Information may be provided for the board of directors as a whole: there is no requirement for it to be broken down by an individual director.
As mentioned in the answer to question 2.1, the Encouragement of Long-term Shareholder Engagement Law strengthens the existing legal framework in Cyprus governing remuneration reports via the introduction of a binding shareholder vote on remuneration policy and a requirement for enhanced disclosure in the remuneration report. Specifically:
- Companies must establish a remuneration policy for directors. The policy should complement the company strategy and detail both the fixed and variable elements of the remuneration package including pensions and contract termination payments.
- The shareholders will have the right to vote on the policy at the AGM and as a minimum every four years thereafter.
- The AGM has the right to hold an advisory vote on the previous year's remuneration report.
- Shareholders have the right to vote on remuneration reports detailing payments to individual directors in the previous financial year. SMEs may hold a discussion rather than a vote at their AGM.
- The remuneration policy must be publicly disclosed without delay on the company website together with the date of the AGM vote and the result of the vote. It must remain freely accessible for so long as the policy is in action.
- Within one year of the closure of the balance sheet, the remuneration report must also be made publicly and freely available on the company website for a period of 10 years.
The Code requires companies to establish a formal and transparent procedure for developing a policy on executive directors' remuneration and for setting remuneration packages. Directors should not be involved in deciding their own remuneration. There should be a remuneration committee consisting of non-executive directors, the role of which is to make recommendations to the board on the executive directors' context and level of remuneration, for consideration by the general meeting. The level of remuneration should be sufficient to attract and retain the calibre of people needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. The Code also recommends that part of the remuneration of executive directors should be linked to corporate and individual performance in a way that aligns the directors' interests with those of the shareholders.
3.4 What are the limitations on, and what disclosure is required in relation to, interests in securities held by members of the management body in the corporate entity/entities?
According to section 187 of the Companies Law, every company must maintain a register demonstrating a full description of each director's interests in the shares of the company. The register must be kept at the company's registered office and be accessible for inspection by shareholders and debenture holders. Directors of listed companies must report all relevant transactions to the CSE and the CySEC and to publish the transactions on the company's website.
Directors of listed companies shall ensure that they comply with the provisions of the MAR and Market Abuse Law 2016 regarding inside information and insider dealings by acquiring or disposing of, for their own account, securities to which inside information relates.
Concerning listed companies, the MAR imposes additional disclosure obligations to persons discharging corporate management responsibilities to serve notification to their company and CySEC no later than a certain period. This notification shall concern the transaction(s) conducted on their own account in relation to the company's equity or other relevant financial instruments.
3.5 What is the process for meetings of members of the management body?
A director having a personal interest in a matter to be discussed by the board must declare this interest according to the provisions of the Companies Law. The provisions of the articles of association may then impose that he or she may be excluded from voting or may not be counted at all for quorum purposes.
The articles of association will set out the detailed provisions concerning meetings of directors (for example, regarding the required quorum, the necessary notice and voting arrangements). The Companies Law does not include provisions on a minimum number of meetings per year but the articles may do so.
According to the Code, the board must hold meetings at regular intervals and no less than six times a year. A formal agenda is also a prerequisite for these meetings. Moreover, the chairman is the person who has the responsibility for the conduct of the board meetings and the sufficient explanation on all issues on the agenda by providing supporting documentation.
3.6 What are the principal general legal duties and liabilities of members of the management body?
Directors must demonstrate good faith and act in the best interests of the company and for the benefit of its members (the shareholders) as a whole. They must monitor the company's affairs, its activities and any relevant risks in a continuous way. In the process of corporate management, the directors should deploy a long-term strategy concerning the impact of their decisions and how the company's reputation in the market is affected. Their management decisions should comply with the law and with the company's memorandum and articles of association. Any breach of these fiduciary duties on behalf of the directors should entail their liability for any loss caused by this breach.
The duty of care in common law is another obligation of the directors which includes a duty to be diligent in managing the affairs of the company. Companies Law in section 383(1) provides further clarification by mentioning that there cannot be a liability on the directors if their actions are honest and reasonable in all the circumstances.
The resolution of any conflict of interest between the directors and the shareholders and/or other stakeholders is another duty that the directors have in the context of corporate management. Accounting and record-keeping, notification, disclosure and reporting, particularly regarding the acquisition and disposal of shares of the company are examples of fields in which the Companies Law and other pieces of legislation indicate detailed requirements for the directors. If the latter fail to follow these statutory duties, they may face sanctions and penalties.
3.7 What are the main specific corporate governance responsibilities/functions of members of the management body and what are perceived to be the key, current challenges for the management body?
The Code gives the directors responsibility for determining the company's goals and strategic policy, its annual budget and business plan, its capital expenditure programme, its mergers and acquisitions activities, its resource allocation and any changes in the application of accounting principles. It recommends that an adequate number of non-executive directors possessing sufficient knowledge and experience to assist in decision-making should be included in the board, with the recommendation that they should make up no less than one-third of the board.
There is also the requirement that the board has in place a comprehensive system of internal control to safeguard the company's assets. At least once per year, the directors must assess the degree of effectiveness of all the company's internal control, financial, operational, compliance and risk management processes. The same should take place for the procedures ensuring the accuracy, completeness and integrity of the information provided to investors. The respective findings and also a confirmation by the board that it was not aware of any violation of the applicable laws and regulations by the company must be included in a formal report on corporate governance.
3.8 Are indemnities, or insurance, permitted in relation to members of the management body and others?
It is not uncommon for Cypriot companies to indemnify their directors or other officers against any liability incurred by them in the process of any legal proceedings. There is no statutory provision that companies should not maintain insurance for directors or other officers against personal liability arising from the exercise of their duties. However, according to section 197 of the Companies Law, any indemnity purporting to indemnify any director or another officer of the company against liability accruing by any negligence, default, breach of duty or breach of trust shall be considered void.
3.9 What is the role of the management body with respect to setting and changing the strategy of the corporate entity/entities?
In public and private entities, the directors must act in accordance with the articles of association. In addition, in respect of public listed entities, they must, inter alia, adhere to the Code. The management body is setting the strategy of corporate entities in compliance with its obligations stated above.
4. OTHER STAKEHOLDERS
4.1 May the board/management body consider the interests of stakeholders other than shareholders in making decisions? Are there any mandated disclosures or required actions in this regard?
As stated above, the board of directors of each company owes a duty to the company to act bona fide in the interests of the company and exercise their powers in the best interests of the company. The increasing importance of corporate social responsibility ("CSR") and the tendency of companies to adopt strategies regarding environmental, social and corporate governance and their effects on the stakeholders may constitute an important matter of consideration for the board.
4.2 What, if any, is the role of employees in corporate governance?
Employees do not play a formal role in corporate governance, particularly since they are not regulated under the Companies Law or the Code. However, they are permitted to acquire shares of the company. Companies Law leaves a margin for an exception to the prohibition of the company from providing financial assistance for the purchase or subscription of its shares where the shares are to be held by or for the benefit of employees.
4.3 What, if any, is the role of other stakeholders in corporate governance?
Cyprus has not adopted a comprehensive view concerning the interests of stakeholders in corporate decision-making and their engagement and involvement in corporate governance. Moreover, no duties to be owed by the board to any stakeholders have yet been recognised or established.
4.4 What, if any, is the law, regulation and practice concerning corporate social responsibility and similar ESG-related matters?
The Cyprus Federation of Employers and Industrialists has established the CSR Cyprus Network, seeking to promote CSR through the granting of awards, and many large businesses have highly visible CSR programmes. From 2012 onwards, the Cypriot government stepped up its efforts to promote corporate responsibility and sustainability, notably through information and awareness actions under the National Action Plan (NAP) on CSR but also through the development of various tools and initiatives to help companies implement CSR actions.
With the adoption of Directive 2014/95/EU, the EU is promoting the minimum legal requirement for some large companies/groups to submit a non-financial statement where they disclose social and environmental information. The primary purpose of this action is to rationalise CSR into business activities so that there is a shift towards sustainable economic growth by combining long-term profitability with social justice and environmental protection.
The scope of the Directive applies to large companies/groups with more than 500 employees which are at the same time public interest entities as defined in national law (Auditors Act of 2017). The definition includes entities whose transferable securities are admitted to trading on a regulated market or regulated market of any Member State, Credit Institutions, Insurance and Reinsurance Undertakings and other bodies designated by decision of the Council of Ministers as having an essential public interest character.
The Directive has been transposed into the National Law of Cyprus and has been in effect since 2 June 2017.
Cyprus is also following the EU efforts to achieve long-term financial and economic stability through ESG with the application of EU Regulation 2020/852 on the establishment of a framework to facilitate sustainable investment, EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector and the Directive 2014/95 regarding disclosure of non-financial and diversity information by certain large undertakings and groups.
5. TRANSPARENCY AND REPORTING
5.1 Who is responsible for disclosure and transparency and what is the role of audits and auditors in these matters?
The company and its administrative and management bodies are responsible for compiling and publishing the required information. The aim is to provide shareholders and potential investors with relevant input so that they can have a comprehensive view of the progress of corporate activities.
According to the Companies Law, every company above a specified minimum size in terms of turnover, assets or employee numbers is under the obligation to appoint an auditor to hold office during the period between the end of the AGM until the end of the next AGM. In fact, all companies must exercise audit since, notwithstanding the small company exemption, there is a requirement on behalf of the tax authorities that tax computations are supported by audited financial statements.
Auditors must be properly licensed and independent. The Transparency Law requires the auditors to review and report on the periodic financial statements outlined in question 5.2 below.
5.2 What corporate governance-related disclosures are required and are there some disclosures that should be published on websites?
In addition to any sector-specific requirements, companies may be obliged to make disclosures following the requirements of good corporate governance under the Companies Law, the Transparency Law and the Market Abuse Law.
The Companies Law
All companies are subject to the disclosure and notification requirements set out in the Companies Law such as the maintenance of registers of shareholders, directors and charges, and the submission of annual financial statements and annual returns to the Registrar of Companies. Further, the articles of association of the Company may include provisions concerning governance-related disclosures.
The Transparency Law
The Transparency Law imposes further disclosure requirements on companies whose transferable securities have been admitted to trading on a regulated market. These include an obligation to publish annual and semi-annual financial statements meeting prescribed requirements within a specified time. Companies must report their material transactions in their own shares, any increase or reduction of total capital and voting rights that occurs and shareholders' material transactions in their shares. They must also notify CySEC and the regulated market on which the securities are traded of any proposal to amend the memorandum or articles of association and of any change to the rights attaching to any class of shares. In particular, the company must ensure that all necessary facilities and information are available allowing the shareholders or security holders to exercise their rights as shareholders. It must keep them informed regarding the place, date and agenda of meetings, the total number of shares and their voting rights, and must publish announcements and issue circulars in relation to the allocation and distribution of dividends or the issue of new shares.
The Market Abuse Law
The Market Abuse Law imposes further disclosure obligations aimed at eliminating insider dealing and market manipulation. Article 17 of the EU Regulation 596/2014 requires issuers with financial instruments traded on a regulated market to make public any inside information which directly concerns them. The information must be notified without delay to the CSE and CySEC as well as simultaneously published on the website of the issuer.
Listed companies are also under an obligation to announce to the CSE as soon as possible, and at least one hour before trading, decisions concerning some issues such as new bond issues and changes to the capital structure.
Furthermore, there is a provision in the Takeover Bids Law that the offeror announces to the CSE and CySEC and makes her/his decision to proceed to a takeover bid public on the offeror's website, if such website exists, on condition that it is final and she/he has no reason to believe that it cannot be implemented.
The Companies Law includes a requirement that every company having a website should publish on it its name, registration number, registered office and whether it is a public or a private company. The Transparency Law requires companies within its scope to publish on their website all the information outlined in this question above, together with any additional information as may be specified in circulars issued by CySEC. This information must also be communicated to CySEC, which may publish the information on its website. The Investment Services Law also requires that a Cyprus Investment Firm (CIF) shall have a website and CySEC must be notified of its address.
Moreover, according to the Companies Law, a listed company should make available to its members on its website information such as the notice for the calling of a general meeting, the total number of shares and voting rights at the date of the notice and the documents to be submitted to the general meeting.
5.3 What are the expectations in this jurisdiction regarding ESG- and sustainability-related reporting and transparency?
CSR is already well ingrained in Cyprus and ESG is seen as a key and growing appendage. The Sustainable Finance Disclosures Regulation (EU) 2019/2088 ("SFDR") came into force in the EU on 10 March 2021 and has since been embraced by Cyprus. CySEC issued a press release on 8 March 2021, formalising its commitment to sustainable finance standards, and emphasised that it is giving priority to developing and supervising said standards for all financial services organisations. Supervised entities are expected to be fully compliant with SFDR disclosure obligations and ESG responsibilities as Cyprus seeks to be in the vanguard of this relatively new investment trend.
Originally published by International Comparative Legal Guides – Corporate Governance Laws and Regulations 2021.
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.