The prohibition of financial assistance under Cyprus company law has evolved significantly due to domestic reforms and EU harmonization efforts. While the core prohibition remains, modern exceptions and procedural safeguards now enable more flexible corporate financing structures.

Cyprus’s financial assistance provisions, historically modelled on the UK’s 1948 Companies’ Act, pursuant to section 53 of the Companies Law prohibited companies from providing direct or indirect support for share acquisitions. This created challenges for leveraged buyouts and acquisition financing.

Recent amendments to Cyprus law and the implementation of EU Directive 2017/1132 relating to certain aspects of company law (codification) have introduced certain exceptions, aligning Cyprus with modern EU corporate governance standards while maintaining creditor protection.

Key Provisions under Cyprus Law

Section 53 of the Companies Law retains its foundational prohibition* but is now subject to exceptions outlined in Sections 57A-57F
Public companies are permitted to acquire their own shares under specific conditions:

• Members’ approval by special resolution
• Funding coming from distributable profits
• Transactions occurring at fair market value

Acquisition Limits: The total nominal value of shares acquired by a public company, including those already held and those acquired on its behalf, cannot exceed the lesser of:

• 10% of the issued share capital, or
• 25% of the average value of trades over the last 30 days (for companies with shares traded on the stock exchange)

Section 57B(1) provides for exceptions to the restrictions of s.57A. These include instances where:

• The shares have been acquired to implement a decision to reduce the company’s capital.
• The shares have been acquired following a transfer of all of the company’s assets.
• The shares have been acquired as bonus shares and are fully paid.
• Shares have been acquired by banks or other credit institutions as commission for a purchase.
• The shares have been acquired due to a legal obligation arising from a court decision aimed at protecting minority shareholders in cases of mergers, changes to the company’s objects, transfers of its seat abroad, or the imposition of restrictions on the transfer of its shares.

Pledge Exceptions

Section 57E provides that the pledge by a public company of its own shares, whether by the company itself or by a person acting in his name but on behalf of the company, is considered to be an acquisition of shares in the manner mentioned in section 57A, section 57B(1), and sections 57D and 53 of the Law, except where the pledge is within ordinary course transactions of the company with banks and other credit institutions.

The provison to section 53(1) is also maintained. Thus, “nothing in this section shall be taken to prohibit:

• the lending of money by the company in the ordinary course of its business, where the lending of money is part of the ordinary business of a company;
• the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including a director holding a salaried employment or office in the company;
• the making by a company of loans to persons, other than directors, in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership.”

Further, in the case of a private company, the prohibition of subsection (1) does not apply:

• where the private company is not a subsidiary of a public company; and
• the relevant action has been approved by a decision of the general meeting of the company by a majority exceeding 90% of the votes of all issued shares of the company.

EU Directive 2017/1132

The Directive’s consolidated rules introduce a risk-based framework for public companies.

Article 64 – Financial assistance by a company for acquisition of its shares by a third party

“1. Where Member States permit a company to, either directly or indirectly, advance funds or make loans or provide security, with a view to the acquisition of its shares by a third party, they shall make such transactions subject to the conditions set out in paragraphs 2 to 5.”

These include:

• Transactions under the responsibility of the management body at fair market conditions
• Shareholder general meeting for prior approval
• The management body shall present a written report to the general meeting, indicating:

Provisions contained in paragraphs 4 and 5 of Article 64 safeguard that the net assets of the company are not reduced below the minimum capital requirements; that the company must create a non-distributable reserve in its balance sheet equal to the amount of financial assistance provided; and that the acquisition or subscription is made at fair price.

Finally, according to Article 64.7, the prohibitions do not apply to transactions aimed at acquiring shares under specific circumstances, e.g., redemption of shares or certain buyback scenarios.

This framework balances flexibility for specific transactions with safeguards to protect creditors and shareholders, ensuring that financial assistance does not jeopardize the financial stability of the company.

*Section 53(1) “Subject as provided in this section and subject to the provisions of sections 57A to 57F, it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company, or, where the company is a subsidiary company, in its holding company:”

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