Shareholders’ Rights & Shareholder Activism 2022 Comparisons

Last Updated September 22, 2022

Law and Practice

Authors



SCORDIS, PAPAPETROU & Co LLC is a leading, dynamic Cypriot law firm whose roots date back to 1922. Today, the firm works with affiliates and subsidiaries to offer a wide range of services, such as international litigation, arbitration and dispute resolution, corporate and commercial, M&A, estate and tax planning and trusts, company/fund formation and administration, fiduciary and trustee services, accounting and tax advisory and financial services, in addition to other traditional services of a law firm. The firm has offices in Nicosia, Limassol, Athens, Moscow and Valletta.

Public limited companies and private limited companies are the main types of legal entities that can be formed.

Private limited companies are the most common type of private companies, and can be limited by shares or by guarantee.

There are also specialised types of companies provided under specialised legislation, such as variable capital companies pursuant to the Alternative Investment Fund/Alternative Investment Fund Managers (AIF/AIFM) law and regulations.

Generally, there are no restrictions as to the nationality, residence or status of any person who wants to become a shareholder in a Cypriot company.

Foreign investors most commonly use private companies limited by shares, mainly because this type of entity can be set up to accommodate a wide range of requirements, from simple sole shareholding arrangements to elaborate corporate group structures, ensuring the investors’ limited liability at the same time.

Furthermore, this type of entity can undertake any type of operation and perform any type of investment while being much more flexible compared to a public company in terms of corporate formalities.

The main types of shares issued by companies are:

  • ordinary shares;
  • preference shares; and
  • redeemable preference shares.

The rights attached to all shares are determined by a company’s articles of association.

In relation to ordinary shares, if there is no specific reference to the rights attached in the articles of association, the presumption is that they rank pari passu in all respects in relation to the other ordinary shares.

Generally, the rights attaching to shares include the right to:

  • receive dividends;
  • attend and vote at general meetings;
  • receive notice; and
  • receive distribution of the company’s capital or assets in the case of a winding-up.

Preference shares may rank ahead of other types of shares, in terms of either dividends or capital, or both. They also usually carry limited voting rights.

Redeemable preference shares can be redeemed at the option of the company or their holder, subject to the terms of issue.

Variations of the shareholders’ rights are usually implemented by amending the company’s articles of association. Once duly passed, any such amendments to the articles of association are binding on all shareholders and the company itself (regardless of whether the shareholder agrees with the amendment), and amount to public notice to third parties on how the company operates. If a company has issued different types of shares, its articles of association may determine the variation of share rights, by providing that rights attached to any class of shares can be varied, either by:

  • written consent of 75% of the holders of the issued shares of that specific class; or
  • an extraordinary resolution passed in a separate general meeting of the holders of the shares.

Shareholders’ rights may be varied by a shareholders' agreement, but any such amendments may not be binding on all shareholders or the company (only on those who are party to the shareholders’ agreement). It is therefore advisable that any such variation should be reflected in the articles of association.

Regardless of the provisions of the articles of association of a company, shareholders who hold at least 10% of the paid-up capital of the company have, among other rights, the right to request that directors convene an extraordinary general meeting (requisition). That right cannot be waived or varied by the articles of association. Similarly, a shareholder cannot be prevented from applying to wind up a company on the so-called “just and equitable grounds” (abuse of minority rights).

There is no minimum share capital requirement for private companies, but the minimum nominal and issued capital of a public company is EUR25,629.

Public limited companies require a minimum of seven shareholders, whereas private limited companies can be set up with a sole shareholder. Generally, there are no restrictions in relation to the nationality, residence or status of any person who wants to become a shareholder in a Cypriot company.

Shareholders’ agreements and joint venture agreements are commonly used in private companies in Cyprus. Shareholders' agreements can be entered into between all shareholders, or between some shareholders, and can include the relevant company as a party (or not), in order to regulate their respective rights and obligations.

The purpose of a shareholders’ agreement is to legally bind shareholders to act or vote in a particular manner in relation to corporate issues that may arise in the company.

Joint venture agreements are a common arrangement whereby two or more corporate bodies each provide capital, assets and/or other resources to a joint venture limited liability company in exchange for shares in that company.

Typical provisions that may be included in shareholders’ agreements cover:

  • the appointment/removal of directors or other officers;
  • setting limits on the authority of the board (shareholder reserved matters);
  • decision-making at board level (veto/majority requirements for certain decisions);
  • decision-making at shareholder level (increased majority for particular topics);
  • deadlock resolution/call/put options;
  • new entrants/obligation to subscribe;
  • capital increases/anti-dilution provisions;
  • non-compete, confidentiality or similar provisions;
  • dividend policy;
  • company activities; and
  • dissolution/exit/buyout.

In addition to these issues in relation to shareholders’ agreements, joint venture agreements may also cover:

  • the object and scope of the joint venture;
  • the structure of the joint venture/representation rights; and
  • more detail on the funding/decision-making and other operational matters normally included as standard in a company’s articles of association.

Shareholders’/joint venture agreements are governed by the established principles of contract law and are enforceable and binding against all parties to such agreements. Moreover, as shareholders’/joint venture agreements are private documents, they are not subject to the publicity requirements normally associated with registered companies. In order to enhance the direct enforceability of shareholders' agreements and any security or rights granted thereunder, it is customary to transpose the key provisions of a shareholders' agreement into the articles of association of the relevant company, while at the same time preserving the confidentiality of the commercial provisions of those agreements.        

Every company needs to hold an annual general meeting (AGM) within 18 months of its incorporation and thereafter once a year; however, an AGM cannot be held after more than 15 months from the previous AGM. The minimum notice period required for convening the AGM is 21 days, although a shorter notice period may be agreed by all the members entitled to attend and vote at the meeting.

The following issues are normally discussed and approved at an AGM:

  • the consideration of financial statements;
  • the declaration of dividends, if they have been previously proposed by the directors;
  • the appointment of auditors and agreement of their remuneration; and
  • the appointment and removal of directors.

For every general meeting to be convened, adequate notice must be given to its members. Indicatively, the minimum notice periods required for convening general meetings, other than AGMs, are as follows:

  • general meeting called for the passing of a special resolution: 21 days;
  • extraordinary general meeting: 14 days; and
  • resolutions requiring special notice (appointment of new auditor/removal of director): 28 days.

A shorter period may be agreed by at least 95% of the members entitled to attend and vote at that meeting.

The company’s directors can call a general meeting. They are obliged to convene an extraordinary general meeting if it is requested by:

  • members of the company holding at least 10% of the paid-up capital of the company;
  • members who represent at least 10% of the total shareholders’ voting rights, for companies with no share capital; or
  • members who representing at least 5% of the total shareholders’ voting rights, for listed companies in a regulated market.

The directors must convene the extraordinary meeting within 21 days from the date of deposition of the requisition by the members. If they fail to convene that meeting within three months from the date of deposition, shareholders representing more than 50% of the total voting rights may convene the meeting themselves.

Furthermore, the court has the discretion to convene that extraordinary meeting, either itself or after the submission of an application by a member to the court, requesting the convening of the meeting.

All shareholders are entitled to receive notice of a general meeting, which is required to specify at least the place, date and time of the meeting, and to provide a reasonable description of the nature of the business to be conducted and reference to the type of resolution to be adopted. Special requirements apply for listed companies, where notices need to include detailed information on the respective shareholders' rights and the procedure to be followed.

Shareholders are entitled to inspect the company’s register of members, free of charge, and to request a copy of that register at any time.

In addition, shareholders have the right to obtain copies of the memorandum and articles of association of the company, and to inspect the register of directors and officers, bonds, debentures, charges, mortgages or encumbrances, subject to the payment of a fee, which is usually relatively low.

Moreover, a company is obliged to keep minute books for all decisions made by the company at general meetings and by the directors at board meetings. Shareholders have the right to inspect the minute books at any time, free of charge, and to request copies of any such decisions.

A shareholders’ meeting can be held by electronic means, unless doing so is expressly prohibited or restricted by the company’s articles of association.

The quorum requirements depend on the articles of association of the company. Therefore, unless stated otherwise in the articles, the following apply:

  • in relation to private companies with more than one member, two members must be present; and
  • for any other company, three members must be present.

There are three different types of resolutions:

  • ordinary resolutions at general meetings require the approval of more than 50% of the members who have the right to attend and vote in order to be passed;
  • special resolutions require the approval of at least 75% of the members who have the right to attend and vote in order to be passed, at a general meeting for which appropriate notice of at least 21 days was given; and
  • extraordinary resolutions require the approval of at least 75% of the members who have the right to attend and vote in order to be passed.

A shareholder has the right to appoint another person as their proxy in order to attend and vote in a general meeting. Proxies must be appointed before the time of holding the general meeting. The company’s articles may restrict the time of appointment of proxies, but any such restriction may not be more than 48 hours before the general meeting.

Any changes to the name or constituent documents of the company (memorandum of association/articles of association), the capital, the composition of the board of directors or auditors of a company require shareholder approval. The approval may be provided in the context of an AGM or an extraordinary general meeting, or by way of a written resolution.

In general, the following thresholds/approval processes apply.

Ordinary Resolution

An ordinary resolution requiring a simple majority of the members attending a general meeting (over 50% having the right to attend and vote) is required for the approval of the following:

  • the appointment and removal of the company’s director;
  • alteration of the company’s share capital (including increase of share capital, consolidation and division of share capital, sub-division of shares into shares of smaller amount and cancellation of shares, conversion of paid-up shares into stock); and
  • the appointment and removal of auditors.

Special Resolution

A special resolution requiring at least 75% of the voting (of shareholders having the right to attend and vote) is required for approval of the following:

  • amendment of the company’s objectives;
  • amendment of the company’s articles of association;
  • amendment of the company’s memorandum (subject to court approval);
  • change of the company’s name;
  • reduction of issued capital (subject to court approval);
  • winding-up; and
  • altering class rights.

The company’s articles of association may contain provisions requiring a greater voting threshold, or reserved matters beyond those prescribed by law that would also require shareholder approval, apart from the removal of a director, which cannot require a greater voting requirement.

Ordinary resolutions at general meetings require the approval of more than 50% of the members who have the right to attend and vote in order to be passed, whereas special resolutions require the approval of at least 75% of the members who have the right to attend and vote in order to be passed.

Unless stated otherwise by the company’s articles of association, any resolution to be considered in a general meeting shall be decided on a show of hands, unless a poll is demanded. A vote on a show of hands means that every shareholder present has one vote, whereas on a poll every shareholder is entitled to a vote for each share they hold.

A shareholder has the right to appoint another person as their proxy in order to attend and vote in a general meeting. Proxies must be appointed before the time of holding the general meeting. The company’s articles may restrict the time of appointment of proxies, but any such restriction may not be more than 48 hours before the general meeting.

Members of listed companies may participate and vote in a general meeting by electronic means. For private companies, general meetings may be held by telephone communication or with any other form of electronic means, unless doing so is prohibited by the articles of association.

Generally, a notice of a general meeting must specify the place, date, time and proposed agenda of the general meeting in order to give shareholders the opportunity to decide whether or not it is in their interests to participate and vote in the specific general meeting. Therefore, it is not possible for shareholders to raise matters that are not included in the agenda, unless all of the shareholders of the company agree (not only the ones participating in the general meeting).

Shareholders have the right to challenge a resolution passed at a general meeting in cases that include:

  • the resolution or action being illegal or outside the company’s objectives;
  • the resolution or action requiring a specific majority that was not reached or a pre-condition in terms of notice or similar that was not met;
  • the resolution or action amounting to or being part of oppressive conduct; or
  • cases of fraudulent actions or omissions.

The procedure for challenging a resolution on the basis of the above criteria may involve:

  • addressing the board or calling a shareholders’ meeting;
  • a shareholder filing a petition in court, seeking a declaration that the general meeting in respect of which the resolution was passed was not lawfully convened or that the resolution passed was not lawfully approved; or
  • an originating summons seeking the interpretation of the company’s articles of association or any other company document and a declaration that there has been a breach of the articles of association or such company document.

Shareholders can pass a written resolution without holding a general meeting, unless this option is expressly disallowed in the company’s articles of association (which is very rare in practice). In order to be issued validly, a resolution must be signed by all directors of the board, without the application of further formal requirements.

The first directors of a company are appointed by the initial subscribers (original shareholders) of a company; the procedure for the appointment of subsequent directors is then governed by the relevant provisions of the company’s articles of association.

Unless this power is expressly restricted by the company's articles of association, shareholders can appoint a director by passing an ordinary resolution. It is also common for the company’s articles of association to provide some powers to the directors to appoint other directors if a vacancy needs to be filled or an additional director needs to be appointed.

Pursuant to Cypriot Companies Law, the shareholders may remove a director prior to the expiry of their term of office, notwithstanding anything in the company’s articles of association or in any agreement between the shareholders and the directors, by passing an ordinary resolution.

Special notice of at least 28 days of any resolution to appoint or remove a director must be given to the company. The company shall send a copy of that notice to the director concerned, who has the right to be heard at the general meeting.

Shareholders have the right to challenge decisions and/or actions taken by the company’s board of directors in court, where:

  • the decision or act is illegal or outside the company’s objectives or the authority of the board (individually or collectively);
  • the decision or action requires a specific majority that was not reached, a pre-condition in terms of notice or similar that was not met, or shareholder approval that was not obtained;
  • the decision or action amounts to or is part of oppressive conduct;
  • the decision or action amounts to self-dealing or similar; or
  • fraudulent actions or omissions have occurred.

The methods of action available to the shareholders are very similar to the ones outlined in 2.11 Challenging a Resolution.

The first auditors of a company may be appointed by the directors at any time before the first AGM, and their appointment will last until the end of the first AGM.

At each subsequent AGM, the shareholders will appoint the auditors by passing an ordinary resolution. The auditors will remain in office from the conclusion of that particular meeting until the conclusion of the next AGM.

An auditor who is retiring shall be reappointed at the AGM without any resolution being passed, unless:

  • the auditor concerned is not qualified to be reappointed;
  • another auditor has been appointed by passing a resolution; or
  • the auditor is unwilling to be reappointed and has provided the company with the appropriate notice in writing.

The shareholders can remove the auditors of a company by passing an ordinary resolution, before the expiry of their period of office, notwithstanding anything in the company’s articles of association or any agreement between the company and the auditor.

For the removal of the auditors of a company, a special notice of at least 28 days shall be given prior to the relevant AGM of the company.

There is a public register of shareholders for companies incorporated in Cyprus, which is kept by the Registrar of Companies. For public companies incorporated in Cyprus, whose shares are listed on the Cyprus Stock Exchange (CSE), or in relation to companies that are regulated in another EU market (and thus shareholder interests are not contained in the public register), shareholders’ disclosure obligations arise in relation to their shareholding participation. Specifically, shareholders must notify the company, the Cyprus Securities and Exchange Commission and the CSE (if the shares are listed thereon) when their shareholding reaches, exceeds or falls under 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%.

Changes in the voting rights of regulated companies may be subject to further disclosure obligations, notifications or approvals by other regulating authorities, such as banks, payment institutions and investment institutions.

Shareholders are generally entitled to grant security interests over their shares, such as pledges on share certificates, assignments of rights, liens and charges. It is noted that the articles of association of a company may restrict the granting or the types of security interests granted over shares.

Shareholders may generally transfer or dispose of their shares freely, subject to any restrictions provided in the articles of association of the company or a shareholder’s agreement containing, for example, any tag-along, drag-along or pre-emption rights. A private company is defined by the law as one which, inter alia, restricts the right to transfer shares. This restriction customarily takes the form of a requirement that the transfer of shares is subject to board approval or the existence of pre-emption rights in favour of other shareholders.

The procedures and requirements for the payment of dividends depend on whether the company is private or public.

Private Companies

A private company may distribute both interim and final dividends. The articles of association of the company usually state when and how dividends shall be distributed.

Generally, the board may from time to time consider, propose and, if approved, pay interim dividends to the shareholder, provided there is available distributable profit during the year (either from profit generated from the previous year or from retained earnings) and that doing so is not prohibited by the articles of association of the company.

A final dividend is paid to shareholders on an annual basis, and is declared out of the distributable profit (or retained earnings) of the year. This usually takes place following the consideration and approval of the financial statements of a company. The decision approving the dividend is made by the shareholders of the company, but the amount cannot exceed that recommended by the board of directors.

Public Companies

In addition to the general distribution principles stated above, further factors need to be taken into account prior to distributing dividends to shareholders of public companies.

A public company may proceed with the distribution of final dividends to its shareholders if the net assets of the previous financial year, as they are reflected in the financial statements, exceed the combined amount of the company’s subscribed capital and reserves. Also, no final dividend will be distributed if doing so is prohibited by the company’s articles of association.

A public company can pay interim dividends to shareholders if certain statutory requirements are met, namely:

  • interim accounts are drawn up, in which it appears that the amounts available for distribution are sufficient; and
  • the amount to be distributed cannot exceed the company’s profits realised after the end of the last financial year for which the annual accounts have been closed, increased by the profits carried over from the last financial year and by the deductions from the reserves available for this purpose, and reduced by losses of previous financial years, as well as by the amounts that must be reserved by virtue of an obligation under the law or the company’s articles of association.

In the event of a company’s liquidation, a liquidator is appointed in order to distribute the company’s assets in the following statutory order of distribution:

  • costs of the winding-up;
  • preferential debts;
  • floating charges;
  • unsecured creditors; and
  • any surplus share capital of the company.

In effect, shareholders are entitled to receive the distribution of the company’s capital or assets, depending on the rights attached in their shares. This being said, distribution to shareholders shall take place if the company retains a surplus following payment of the distribution of assets in the above-mentioned order.

Voluntary Liquidation

Under the Cypriot Companies Law, shareholders may initiate a voluntary winding-up of the company. Specifically, the shareholders may, by an ordinary resolution, require that the company be wound up voluntarily if:

  • the period prescribed for the duration of the company by its articles of association expires; or
  • an event occurs which the articles provide calls for the company to be wound up.

Alternatively, the shareholders may pass a special resolution requiring the company to be wound up voluntarily.

Lastly, the company may be wound up by an extraordinary resolution, to the effect that it cannot by reason of its liabilities continue its business and that it is advisable to wind it up.

The following legal remedies are available to shareholders against the company.

Personal Action

Considering the contractual implications of a company’s articles of association, shareholders are contractually entitled to sue when their rights have been infringed, by virtue of their “statutory contract” between themselves and the company, pursuant to Section 21 of the Cypriot Companies Law. Shareholders have additional tortious remedies available, such as the availability to seek damages in the case of fraud. These remedies are generally also available to minority shareholders.

Petition Under Section 211(f) of the Cypriot Companies Law to Wind Up the Company on a Just and Equitable Ground

Section 211(f) of the Cypriot Companies Law gives any shareholder of the company the right to petition the winding-up or dissolution of the company on a just and equitable ground. Whether it is “just and equitable” to wind up a company depends on the individual circumstances of each case.

In the leading case of Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 HL, Lord Wilberforce stated that it is wrong to categorise the cases in which the particular clause would be applicable.

The “just and equitable” ground has been interpreted by the Cypriot Courts to cover, inter alia, situations where:

  • the company’s main objective has failed;
  • there is a deadlock in the management of the company;
  • there is a justifiable loss of confidence and trust in the company’s management; or
  • the company has been formed for a fraudulent purpose.

The court may be reluctant to wind-up the company if it is of the opinion that some other remedy is available to the petitioner or in the event that the petitioner is unreasonably pursuing this remedy rather than another.

The petition can be brought by minority shareholders.

Petition Under Section 202 of the Cypriot Companies Law (“Alternative Remedy” to Winding-Up on Just and Equitable Grounds)

Any member of a company may apply to the court seeking protection on a just and equitable basis – namely, that it would be just and equitable to be granted an appropriate remedy under Section 202 of the Cypriot Companies Law because the affairs of the company are being conducted in a manner that is oppressive to some of the members, including said member.

Petitions under Section 202 of the Cypriot Companies Law allow minority shareholders – who are less able to influence the company’s affairs than majority shareholders – to seek relief.

In the context of a Section 202 claim, the court can issue various orders with a view to bringing the matters being complained about to an end. While the primary remedy for oppression is the winding-up of the company and distribution of its assets to its members, pursuant to Section 211 of the Companies Law (as noted above), Section 202 allows the court, inter alia, to issue an order to regulate the company’s affairs in the future, to purchase the shares of any members of the company from other members or from the company itself and, in the case of the latter, to implement the respective reduction of the company’s capital, or otherwise.

Section 202 of the Cypriot Companies Law is the English law equivalent of Section 210 of the old English Companies Act 1948, and the respective case authority under English law has a significant impact on how the judiciary in Cyprus approaches any matters under the aforementioned provision. In the leading case of Re Pelmako Development Ltd (Civil Appeal No 8966 10/09/1999), the Cypriot courts expressly declared that Section 202 of the Cypriot Companies Law corresponds to Section 210 of the English Companies Act 1948.

Furthermore, Sections 158 and 159 of the Cypriot Companies Law, amongst others, enable shareholders to apply to the Council of Ministers for the appointment of an inspector to investigate the company’s affairs, if the shareholders have good reasons to believe that:

  • the company’s business is being conducted with an intent to defraud its creditors, or for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members, or that it was formed for any fraudulent or unlawful purpose;
  • persons concerned with its formation or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members; or
  • its members have not been given all the information with respect to its affairs which they might reasonably expect.

This action is also available to minority shareholders, as follows:

  • in the case of a company having share capital, upon the application of either no fewer than 200 members or of members holding not less than one tenth of the shares issued; or
  • in the case of a company not having share capital, upon the application of not less than one fifth in number of the persons on the company's register of members.

Generally, shareholders' remedies are available against the company rather than against the directors. It is well established that directors’ duties are owed to the company itself, rather than to the shareholders, and therefore the company is the appropriate party to initiate legal proceedings against a director. An exception to this general principle is where shareholders initiate a derivative action on behalf of the company (see 7.3 Derivative Actions).

In exceptional cases, where a director and a shareholder are parties to an agreement, a breach of the terms of that agreement by the directors may give rise to direct contractual remedies for shareholders, subject to the provisions of the agreement.

Pursuant to the general principle in the English case of Foss v Harbottle 67 ER 189, which was judicially endorsed by the Supreme Court of Cyprus, the company is considered to be the proper claimant in circumstances where a wrong is committed against the company itself. Usually, the board of directors is the body responsible for instituting proceedings, although that responsibility will lie with the majority of shareholders if the directors themselves are the alleged wrongdoers.

Exceptions to this strict principle came into force through the English case of Edwards v Halliwell [1950] 2 All ER 1064, which was judicially adopted by the Supreme Court of Cyprus in the case of Aimilios Thoma v Jacob Eliades [2006], in which Jenkins J stated that, when the conduct was such that it amounted to “a fraud on the minority and the wrongdoers are themselves in control of the company”, the general principle is relaxed, allowing the minority shareholders to initiate an action (ie, a derivative action) on behalf of themselves and other members, provided it can be shown that the persons who are alleged to be engaged in wrongdoing are in control of the company or that, for some other reason, the company is itself unable to institute legal proceedings in respect of the wrongdoing. In such cases, the shareholders’ right of action derives from that of the company.

In a derivative claim, the persons who are allegedly engaged in the wrongdoing will be named as defendants, along with the company itself. It is crucial to include the company as a defendant in order for the company to be able to secure the benefit of any court order that may be forthcoming. In practice, the company is considered as a “nominal defendant” in order to ensure it is bound by any decision of the court and in the view that the company itself cannot initiate the claim.

A derivative action for fraud of the minority is an equitable remedy available to shareholders and therefore it is at the court’s discretion whether such an action will proceed and which remedy, if any, is more appropriate to be granted, depending on the individual circumstances of each case.

For instance, in a derivative action, the award of punitive damages in favour of the company, as the nominal defendant, and against the wrongdoers was considered correct (Aimilios Thoma v Jacob Eliades [2006], Theodoros Pirillis v Eleftherios Kouis (2004) 1 CLR 136). Also, pursuant to a judgment issued by the Supreme Court of Cyprus in the case of Christou v Milliou (Civil Appeal 255/2010, 13.6.2013), it was stated that a derivative action and a claim for the benefit of the claimant/shareholder cannot be combined.

Shareholder activism (in the sense used in the US to describe the active intervention of shareholders – usually those in the minority) in the management and overall affairs of a company is not common in Cyprus.

The Cypriot Companies Law and the Corporate Governance Code (for companies listed on the CSE) are the main statutory provisions that allow (or restrict) shareholder activism. Relevant provisions are also found in other legislative acts, such as the Market Abuse Regulation and the Market Abuse Law, as well as regulatory acts governing and regulating listed companies, such as the Transparency Requirements Law and the Take-Over Bids Law.

The Cypriot Companies Law offers the traditional means for manifesting shareholders’ intervention. These means range from requisitioning general meetings to requesting information about statutory books, records and financial statements, and from appointing/removing directors to more aggressive forms of action, such as the appointment of an inspector, derivative claims and applications to the court on the “just and equitable” principle (abuse/oppression of minority rights).

The Transparency Requirements Law is applicable to listed companies and aims to enhance the visibility of shareholding build-ups, obliging shareholders whose percentage exceeds (or even falls below) 5% or 10% of voting rights to disclose their stake to the company. While this protects shareholders in some respects, it potentially creates an impediment for activist shareholders who are looking to acquire a sizeable stake before exercising pressure on the board.

Lastly, indirect restrictions on shareholder activism are also found in the Take-Over Bids Law, which obliges a shareholder, or shareholders acting in concert, holding a stake of 30% (or more) of voting rights to make a bid “to all the holders of those securities for all their holdings” at an equitable price.

Every activist shareholder has different aims. These may be both financial and non-financial and include both financial aims and non-financial aims.

  • Financial aims:
    1. maximising returns/distributions to the shareholders;
    2. enhancing capital value;
    3. deleveraging/financial transparency;
    4. improving share value; and
    5. buyout.
  • Non-financial aims:
    1. transparency;
    2. good corporate governance;
    3. ethics and compliance;
    4. merger/takeover/change of strategy or similar; and
    5. social responsibility.

Activism usually starts with demands for transparency and explanations and questions at general meetings, followed by adding items to the agenda of a general meeting (if the activist shareholder has or can build up a stake of 5% or more in a listed company) and then the formation of alliances with other similarly minded shareholders.

Activists may also seek to engage in private discussions with members of the board to promote their concerns and suggestions.

If there is sufficient momentum and support, activist shareholders may requisition general meetings with specific agendas or even attempt to shake up board compositions.

Lastly, if activism alone is not sufficient (either due to a lack of sufficient votes or for other reasons), an activist shareholder may apply for the appointment of an inspector, submit a derivative action in court or apply to the court on the “just and equitable” principle (abuse/oppression of minority rights).

It is difficult to make generalisations in view of the small market/limited number of relevant companies in Cyprus, but it appears that the financial sector is attracting the most public activism, partly due to the size and shareholder diversity of the relevant companies. In addition, Cyprus’ banking sector has attracted international funds, including funds known for shareholder activism, such as Worldview Capital Management LLC, which came close to becoming a key shareholder of Hellenic Bank.

Cyprus’ banks are not the only targets of shareholder activism. One highly publicised shareholder dispute case involved the sale of a hotel in Cyprus. The dispute made headlines due to the fierce opposition of an activist minority strongly contesting the sale by employing a mixture of various corporate tools and publicity along with judicial action and regulatory intervention, leading to the investigation of the asset’s valuation method on behalf of the Cyprus Securities and Exchange Commission.

Moreover, in wake of the war in Ukraine, there is an increasing trend of shareholder activism, exerting pressure on companies to divest Russian assets.

Considering that activist hedge funds and other activist investment vehicles are essentially absent from Cyprus, no particular group/type of shareholder can be identified as being more active than others.

There is no information available on the proportion of activist demands met in Cyprus in the last year.

The first thing that a company needs to do is ensure that it receives professional advice on complying with both the letter and the spirit of the law. Secondly, a company should strive to take decisions and actions that are for the benefit of all shareholders, in a transparent manner. In addition, company boards could create policies for addressing shareholder concerns effectively (especially in key matters such as corporate governance and dividend policy) and remaining vigilant on shareholder relations as well as shareholder build-ups.

Once challenged by activist shareholders, a company should not ignore them, but should address the concerns of its shareholders, especially those concerns that could prove beneficial for all shareholders and/or the company’s operations. If challenges move to the field of general meetings, the company must scrupulously adhere to the relevant rules and procedures in order to limit potential sources of dispute. Lastly, if matters become litigious, a company must always remain open to mutually beneficial settlements, aiming at the same time to use those settlements as a means to mitigate the risk of future activist campaigns.

To minimise the risk of shareholder activism, the company may proceed with the following practical steps:

  • assess and examine the autonomy of each member of the board, including their abilities and ethics as well as their compensation – it is crucial to examine if their abilities are sufficient to accomplish their obligations towards the company;
  • assess the customer strategy and examine the revenue source – ie, examination regarding the existence of unprofitable customers within the company;
  • consider different methods of reducing costs following operating costs’ assessment;
  • promote the maintenance of positive relations between the shareholders while ensuring that their concerns are duly addressed; and
  • evaluate the company’s capital structure and investment on a frequent basis.
SCORDIS, PAPAPETROU & Co LLC

30, Karpenisi Street
the Business Forum
P.O. Box 20533
1660 Nicosia

+357 22 843 000

+357 22 843 444

info@scordispapapetrou.com www.scordispapapetrou.com
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Law and Practice in Cyprus

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SCORDIS, PAPAPETROU & Co LLC is a leading, dynamic Cypriot law firm whose roots date back to 1922. Today, the firm works with affiliates and subsidiaries to offer a wide range of services, such as international litigation, arbitration and dispute resolution, corporate and commercial, M&A, estate and tax planning and trusts, company/fund formation and administration, fiduciary and trustee services, accounting and tax advisory and financial services, in addition to other traditional services of a law firm. The firm has offices in Nicosia, Limassol, Athens, Moscow and Valletta.