The “famous†law with its subsequent amendments
By Chris Iacovides
In a previous article, I considered bankruptcy and its repercussions, with specific reference to the difference between Annulment and Discharge.
Discharge is the procedure whereby the bankrupt obtains his/her release from the restrictions of bankruptcy and has no obligations to any of the liabilities due at the time of the receiving order, whereas annulment has the effect of reversing the bankruptcy, as if it was never made.
Discharge therefore, does not have the same effect as annulment.
Discharge does not remove the stigma of bankruptcy from the public domain. It should, however, relieve the bankrupt from his/her debt obligations. Unfortunately, it does not.
I wonder if the «architects» and «lawmakers» have themselves appreciated the difference; the Bill presented to parliamentarians for enactment is ill thought. Unfortunately, the selective committee, represented by Members of Parliament, when preparing the amendments, may not have considered the implications either.
It is clear in my mind that the enactment of this law, as modified, does not provide the outcome the legislator intended. Unfortunately, bankruptcies derive no real benefit, in that any after acquired assets may be appropriated by the Trustee of their Estate in Bankruptcy for satisfaction of their bankruptcy debts.
Bankruptcy in Cyprus, prior to the harmonization changes brought about by Cyprus’ accession to the European Union was and still is governed by Chapter 5 (“CAP5”) of the Laws of Cyprus and lasted for life.
The new law, as amended, purports to bring about the desired effect of ending one’s bankruptcy after a period of four or fifteen years (if bankruptcy offences were committed).
Many believe that this has been achieved and it brings about an end to the burdensome consequences of bankruptcy. Unfortunately they are mistaken!
Reference to annulment in the legislation is wrong. The application bankruptees are able to file, after the expiration of the statutory period, following the making of the bankruptcy order, is for their discharge and not for their annulment as they may believe.
It is clear that those involved in preparing the Bill looked to the English Insolvency and Enterprise Acts 1986 and 2002 for guidance, in relation to amendments made to CAP 5. Unfortunately, those involved in the drafting of the Bill and its subsequent amendments may not have appreciated the consequences.
It is understandable for assets belonging to a bankrupt individual during the time of the making of the order, to vest with the Trustee, even after his discharge, in the event that these assets, for whatever reason, have not been realised for the benefit of the Estate.
It is absence however, for a bankrupt, who suffered the consequences of bankruptcy, having fully co-operated with his trustee and is now ready for a new start, by applying for discharge (not annulment as people believe they do by applying to the court) not to be able to acquire assets, as these are at risk of been appropriated by the Trustee, after one’s discharge, in order to satisfy bankruptcy liabilities.
To this end, why the trouble in amending the legislation, if after-acquired assets are venerable?
Since the changes in the Law do not provide for the write off of bankruptcy debts, post discharge, then what is the benefit?
Those responsible officials and Parliamentarians involved in bringing about and amending Section 27 and 27(a) of CAP 5, should go back to the drawing board and make further amendments. Failure on their part to recognise the shortcomings in the Law may expose the government pursuant to its EU obligations.
Chris Iacovides is a Licensed Insolvency Practitioner with over 25 years experience in insolvency related matters. In Cyprus, he is director in CRI Group, www.crigroup.com.cy , a firm specialising in all aspects of corporate turnarounds and personal insolvency.
