The Cyprus Securities and Exchange Commission (CySEC) has issued a circular clarifying the treatment of fractional share exposure under Cyprus’ Investment Services and Activities and Regulated Markets Law (Law 87(I)/2017), which transposes MiFID II. The circular provides important guidance for Cyprus Investment Firms (CIFs) offering fractional investments in shares and the regulatory framework they must follow.

Fractional share exposure allows investors to own a portion of a whole share, a trend that has gained popularity through online trading platforms. This circular specifically focuses on CIFs enabling fractional ownership through trust arrangements, where the CIF holds whole shares and allocates beneficial ownership fractions to multiple clients. Under these arrangements, CIFs create a fiduciary relationship with their clients, where the CIF retains legal ownership of the shares, but clients hold beneficial ownership based on their fractional exposure. These arrangements must comply with the asset safeguarding rules outlined in Law 87(I)/2017 and CySEC Directive DI87-01, which ensure the protection of client assets.

The circular stipulates that all rights associated with the shares—such as voting rights, dividends, and residual interest in the event of the issuer’s liquidation—must be proportionally granted to fractional owners based on their entitlement. CIFs are also required to document these trust arrangements clearly, ensuring transparency in ownership records. CySEC clarifies that fractional shares created due to corporate actions or those issued in fractional form by jurisdictions that allow such issuance are not covered by this circular. These shares are treated as whole shares and do not require trust arrangements to confer beneficial ownership.

CIFs offering fractional investments in shares are subject to regulatory requirements under both Law 87(I)/2017 and MiFIR. This includes the obligation to comply with MiFIR’s share trading rules and the requirement to provide clear, accurate, and non-misleading information to clients. CIFs must ensure that fractional holdings meet regulatory standards and that clients fully understand the nature of their investments.

For any needed clarifications please liaise with your usual contact person at Chrysses Demetriades & Co LLC.

On 31/01/2022, the District Court of Larnaca in Application no. 1/2020 in the case of Kazakhstan Kagazy PLC a.o v Arip a.o^[1], issued a judgment holding that litigation funding is not contrary to the public policy of the Republic of Cyprus. 

The Larnaca court’s judgment was issued within the context of an application by the judgment debtors/respondents to set aside a Cypriot declaration of enforceability of an English money judgment and order issued against them by the High Court of Justice of England & Wales. Although the case was heard after Brexit, the Larnaca court applied the regime established under the Brussels Regulation since the (English) legal proceedings were instituted before the end of the transition period provided under the Withdrawal Agreement concluded between the European Union and the United Kingdom.

The above English judgment and order were rendered in October 2019 after the judgment debtors/respondents were added as defendants to the English proceedings Kazakhstan Kagazy PLC a.o. v Baglan Zhunus a.o (CL-2013-000683) for the purpose of costs. By the English judgment, the judgment debtors/respondents were found to be jointly and severally liable to pay the judgment creditors/applicants’ costs of the main English proceedings, and they were also ordered to make an interim payment of £8 million towards these costs, pending their final assessment.  

In the main English proceedings, defendants 2 and 3 were found to have perpetrated a sophisticated fraud and were ordered to pay approx. 300 million USD. 

Since the English judgment had been issued as part of an action filed by the Applicants in England prior to 10/01/2015, the declaration of enforceability was obtained under Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“the Brussels Regulation”)^[2]. 

One of the main grounds raised in the Respondents’ set aside application, by which they challenged the declaration of enforceability, was that the recognition of the judgment would be contrary to the public policy of Cyprus because the English judgment was obtained in proceedings where the judgment creditors’/applicants’ claim was funded under a third-party litigation funding agreement with Harbour Litigation Funding (“Harbour”). Their position was therefore that pursuant to Article 34(1) of the Brussels Regulation, the English judgment should not be recognised and enforced in Cyprus as being contrary to Cypriot public policy. 

The Cypriot Court decided that the existence of a litigation funding agreement could not constitute a reason for refusing recognition and enforcement of the English judgment. In reaching its decision, the Court mentioned that:

• The principles of maintenance and champerty were developed under the common law in the middle ages in order to protect the administration of justice from abusive conduct. In particular, it aimed to deter those with positions of influence from buying doubtful or fraudulent claims expecting that they would have higher chances of success in relation to the claimant given their influence and position. 
• The principles were developed to prevent proceedings initiated with questionable motives, which could hinder the proper administration of justice. 
• The claimants’ litigation funding agreement with Harbour was implemented with the full knowledge, approval and acceptance of the English Court and this was never disputed during the English proceedings.
• The litigation funder, Harbour, had adopted the Code of Conduct for Litigation Funders of England and Wales.
• Without the funding, the Applicants would not have been able to pursue their honest claims for fraud against the defendants in the main English proceedings and therefore the litigation funding provided the judgment creditors/applicants with access to justice. 

In the absence of Cypriot case law dealing with the legality of third party litigation funding, the Larnaca court agreed with the judgment creditors/applicants that it should apply the (modern) common law position by virtue of section 29 of the Courts of Justice Law 14/1960. The decision makes explicit reference to a number of favourable judgments to third party litigation funding from several common law jurisdictions, including the decisions of the English courts in British Cash and Parcel Conveyors, Limited v. Lamson Store Service Company, Limited [1908]1 K.B. 1006 and Akhmedova v. Akhmedov & Ors (Litigation Funding) (Rev 1) [2020] EWHC 1526 (Fam), the Canadian case Quebec Inc (Blueberi) v. Callidus Capital Corp [2020] SCC 10, the New Zealand cases Contractors Bonding Limited v. Waterhouse [2012] NZCA 399 and Saunders v. Houghton [2009] NZCA 610, the Jersey case Re Valetta Trust [2011] JRC 227, the Cayman Islands case A Company v A Funder [2017] (2) CILR 710 and the Bermuda case Stiftung Salle v Butterfield Trust (Bermuda) Limited  [2014] SC (Bda) 14 Com.  

In addition, the Court decided that even if the judgment had been contrary to the public policy of Cyprus, it could not be considered to be contrary to public policy to the level necessary to justify non-recognition of the judgment under the Brussels Regulation, since, under the Brussels Regulation regime, the judgment to be enforced would have to be manifestly contrary to the public policy of a Member State in order for such a refusal of recognition to be justified. 

This is the first Cypriot judgment addressing whether a third party litigation funding agreement can be considered as contrary to the public policy of Cyprus. Although this judgment is not binding on other District Courts in Cyprus, it is to be welcomed as it demonstrates that the Cypriot Courts are prepared to follow the modern common law position under which the medieval rules of champerty and maintenance have been relaxed when it comes to third party funding which facilitates access to justice. 

* It is noted that an appeal has been filed in relation to this judgment before the Supreme Court of Cyprus. 

*Τhis article was first published in April 2022

For more information please speak with Polyvios Panayides or your usual contact at Chrysses Demetriades & Co LLC.

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[1] . The full text of the Larnaca court’s judgment can be found here.

[2] . Under Article 66(2) of Regulation (EU) No 1215/2012: “Regulation (EC) No 44/2001 shall continue to apply to judgments given in legal proceedings instituted, to authentic instruments formally drawn up or registered and to court settlements approved or concluded before 10 January 2015 which fall within the scope of that Regulation. ” The temporal applicability of Regulation 1215/2012 formed the basis of a prior interim decision that was confirmed by the Court in its judgment dated 31/01/2022.  

On 23 February 2022, the Protection of Competition Law of 2022 (Law 13(I)/2022)[1] entered into force in the Republic of Cyprus, repealing the former Protection of Competition Laws of 2008 and 2014. Upon its one-year anniversary, this article reflects back on some of the main changes brought about by this new piece of legislation.

Key Changes

The Protection of Competition Law of 2022 transposes Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018, which aims to empower the competition authorities of EU Member States to be more effective enforcers and to ensure the proper functioning of the internal market.[2]

In light of the objective of the new legislation, the substantive provisions of the previous legal framework remain intact and the changes mainly concern:

• The procedure for lodging a complaint;
• The strengthening of the powers and responsibilities of the Commission for the Protection of Competition (CPC), including the power to summon natural or legal persons for interviews;
• The designation and protection of business secrets and confidential information;
• The procedure for accessing a case file;
• The nature of the proceedings before the CPC and the admissibility of evidence;
• The independence of the CPC and its mutual cooperation with other national competition authorities;
• The level and type of administrative fines;
• The evidential value of the CPC’s final decision in the context of possible damages actions.

Interviews

The Protection of Competition Law of 2022 not only maintains and codifies the powers already held by the CPC but in addition it now enables the CPC to summon for an interview any representative of an undertaking or association of undertakings, any representative of other legal persons, and any natural person, for the purpose of obtaining statements and information, in so far as they may possess information relevant to the application of Section 3 and/or 6 and Article 101 TFEU and/or Article 102 TFEU. Failure to comply with a summons issued by the CPC may lead to the imposition of administrative fines.

Right to Access

A novelty of the Protection of Competition Law of 2022 is that it codifies and specifies the procedure for access to the case file, shedding some sought after light on the matter. The CPC has also published a guidance regarding the procedure for access to the case file.[3]

Under the Protection of Competition Laws of 2008 and 2014, the CPC was not bound to communicate the whole file formed by the CPC on the case to the investigated undertaking or association of undertakings. It was merely bound to communicate to it all of the documents of the file on which it intended to base its decision, with the exception of those documents constituting business secrets.

Following the entry into force of the Protection of Competition Law of 2022, any undertaking or association of undertakings that has been notified of a Statement of Objections or was notified of the grounds on the basis of which it is considered that an infringement of the provisions of the law is suspected, has a right of access to non-business secrets and non-confidential information and to documents forming part of the administrative file of the case. No undertaking, association of undertakings or third party shall have a right of access to internal documents.

An undertaking or association of undertakings may now also request access to business secrets or confidential information. The CPC may grant such access in whole or in part only by reasoned decision in cases where access to it is necessary for the exercise of the rights of defence of an undertaking or association of undertakings to which a Statement of Objections has been communicated and only to a person in respect of whom such access is strictly necessary for the exercise of the rights of defence.

Furthermore, the Protection of Competition Law of 2022 clarifies that in cases where the information before the CPC does not give rise to a reasonable suspicion for possible infringement of Section 3 and/or 6 and Article 101 TFEU and/or Article 102 TFEU, the CPC may, upon request and before taking a decision, grant natural or legal persons who had lodged the relevant complaint access to the non-business secrets and non-confidential information in the file of the case.

It is evident that these changes not only strengthen one’s right of defence, but they also extend the ambit of a complainant’s right of complaint. Unlike under the previous legal framework, a complainant now has the right to access the case file before adoption by the CPC of its decision. While in the past a complainant had to wait for the CPC’s end result before it could challenge the findings of the CPC through an administrative action in court, it now has the opportunity to access the case file and voice any views prior to adoption of the CPC’s decision.

Irrebuttable Presumption

The Protection of Competition Law of 2022 also aligns the legislation with the Law on Actions for Damages for Infringements of Competition Law (Law 113(I)/2017)[4], through a significant change of the evidential value of a final decision of the CPC in cases of a finding of an infringement of the provisions of Section 3 and/or 6 of the said law and Article 101 TFEU and/or Article 102 TFEU.

A final CPC decision finding an infringement constitutes an irrebuttable presumption and it can be relied on by any person who has suffered damage as a result of the infringement in accordance with the provisions of the Law on Actions for Damages for Infringements of Competition Law. ‘Final decision’ is a decision of a national competition authority or a reviewing court finding an infringement of competition law, which cannot or can no longer be subject to an ordinary appeal. Under the Protection of Competition Laws of 2008 and 2014, such a decision constituted a rebuttable presumption.

*The article was first published on 28 February 2023

For more information please speak with Polyvios Panayides, Ioanna Kyriakidou or your usual contact at Chrysses Demetriades & Co LLC.

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[1] http://www.cylaw.org/nomoi/enop/non-ind/2022_1_13/full.html

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019L0001

[3]http://www.competition.gov.cy/competition/Competition.nsf/All/06B70CCCBC8A8994C225887700383CFC?OpenDocument

[4] http://www.cylaw.org/nomoi/enop/non-ind/2017_1_113/full.html

In today’s fast-paced corporate environment, business mergers, acquisitions, and transfers are increasingly common, particularly in markets like Cyprus. According to the Council Directive 2001/23/EC, employees retain essential rights during these transitions. Whether you’re an employee or an employer, understanding your obligations and entitlements under TUPE (Transfer of Undertakings Directive) can help you navigate these changes smoothly and avoid costly disputes.

Contents

1. TUPE’s Scope and Employee Protections
2. Employers’ Obligations and Employees’ Rights
3. How Courts Apply TUPE in Business Transfers

TUPE’s scope and employee protections

The “Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings,” commonly referred to as TUPE, was implemented in Cyprus through Law 104(I)/2000, as amended. This directive ensures that employees’ rights are protected when a business or part of a business is transferred to a new owner.

In the event of a business transfer, employees of the original employer (the transferor) are automatically transferred to the new employer (the transferee) with their existing terms of employment intact. Although employees have the right to refuse the transfer, this decision may result in the loss of severance pay or compensation if they are dismissed by the original employer.

TUPE’s primary objective is to protect employees from losing their employment benefits due to a change in ownership. The increasing foreign investment in the Cypriot market has made TUPE increasingly relevant as mergers and acquisitions become more frequent. For both employees and employers, understanding the full scope of this regulation is essential to avoid disputes during these transitions.

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Employers’ obligations and employees’ rights

Under TUPE, the transferor must notify employees about the proposed transfer and explain how it might impact their working conditions. Employees are entitled to a reasonable period to consider this information and, where applicable, can have representation and consultation during the process. However, they do not have the power to block the transfer.

Upon the transfer’s completion, the transferee inherits all rights and obligations associated with the employees’ contracts of employment. This includes compliance with any collective agreements that were in place with the transferor. Furthermore, the transfer itself cannot be a reason for dismissal by either the transferor or transferee.

If a dismissal occurs because of the transfer, or if the transfer leads to significant changes in working conditions that harm the employee, they may claim compensation. In such cases, the transferor may be liable under the Termination of Employment Law or the employment contract’s terms. Failure to meet these obligations can result in legal action, making it essential for employers to understand their responsibilities fully.

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How courts apply TUPE in business transfers

Determining whether TUPE applies to a specific business transaction involves a nuanced legal test. TUPE applies only to the transfer of an “economic entity” that retains its identity after the transfer. According to the European Court of Justice in Spijkers v. Gebroeders Benedik Abbatoir (Case C-24/85), an economic entity is defined as an organized grouping of resources pursuing an economic activity, whether central or ancillary.

Key factors that courts consider when assessing whether an economic entity retains its identity after a transfer include:

1. The transfer of the business’s tangible assets, such as property and equipment.
2. The value and transfer of intangible assets, including goodwill.
3. The extent to which employees are taken on by the transferee.
4. Whether customers are transferred along with the business.
5. The continuity of economic activities before and after the transfer.
6. The period of suspension, if any, between the transferor and transferee’s operations.

For TUPE to apply, all these factors are considered holistically to determine if the business’s core operations remain intact. The distinction between the transfer of an economic entity and mere changes in ownership (such as a transfer of company shares) is critical. In the latter, the employer remains the same legal entity, and TUPE protections do not apply.

By carefully reviewing these factors, prospective buyers and sellers can ensure compliance with TUPE and avoid legal disputes arising from employment rights violations.

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Conclusion:
Understanding and applying TUPE regulations are critical in today’s increasingly dynamic business environment, where mergers and acquisitions are more common. Employees benefit from TUPE by having their rights protected, ensuring that business transfers don’t result in unfair dismissal or the loss of important employment terms. At the same time, employers must meet their legal obligations to avoid liability and the potential for employee claims.

Both parties—employees and employers—must stay informed about how TUPE applies to their specific situation. If you’re involved in a business transfer, consulting legal experts is a smart move to ensure full compliance and protect your interests.

Keywords: TUPE compliance, business transfers, employee rights, employer obligations, legal advice.

For more information please speak with Thomas Christodoulou or your usual contact at Chrysses Demetriades & Co LLC.