Assistance crucial with shares pledge agreements in Cyprus

A pledge describes a contractual relationship whereby the physical possession of any asset capable of actual (or constructive) delivery is delivered by one person (the pledgor) to another (the pledgee) as security for payment of a debt or performance of a promise. In the context of a pledge agreement concerning the shares of a private company incorporated in Cyprus, such assets comprise the original shares certificate which evidences title to such shares as therein expressly mentioned.

A shares pledge is predominantly regulated by the Contract Law of the Republic of Cyprus, whose applicable provisions purport to codify the developed and long established UK common law principles in the field of bailment. In addition, the striking similarities of the Contract Law to similar enactments across ex-Commonwealth countries, plausibly explains the credibility enjoyed by the shares pledge agreement in cross-border financing transactions.

Trusted medium

The shares pledge agreement comprises a much trusted medium for creditors in securing a loan or a deferred payment. On execution of the shares pledge agreement, the pledgor hands over to the pledgee the share certificate of the shares used as security. The ownership of the pledged shares remains with the pledgor, as it is only the possession of the shares certificate that is delivered to the pledgee. The pledgee (or any other person nominated by the pledgee) shall become the registered owner of the pledged shares once, and if the pledgor is in default (or in continuous default) of the terms stipulated in the shares pledge agreement.

Nick Tsilimidos is an associate at L Papaphilippou & Co in Cyprus