No way off the island. The companies have nowhere to run off Cyprus as yet

The bank holidays in Cyprus are over, and the business is facing the choice, whether to remain in that low-tax jurisdiction or leave it. Cyprus obviously will not remain the same.

The amount of payments to the budget will change; the certainty of the safety of the money in the island’s banks will vanish. But the experts are reluctant to draw conclusions as there is no viable alternative to Cyprus as of yet. Lawyers have discussed the consequences of the Cyprus crisis at the Legal Forum of Russia. Many clients of Cyprus banks, many of them Russian companies, are in a tight place. The quickest ones managed to react and withdraw their savings. There was a chance of that, however minimal. <…>

Many companies are currently in a situation, where the amount of their accounts remains unknown, the transactions are subject to checks and obligations under contracts non-performed. Maxim Rovinskiy, Head of Tax and Customs Law Practice of the Law Firm "YUST", tells that the business has faced an entire series of unfavorable consequences, among those – the impossibility to make planned payments under executed transactions with the use of the funds on the Cyprus bank accounts. In this case, the payer breaches the agreement, and many contracts stipulate significant penalties for that. Another complication is the impossibility to complete payment operations on the transactions initiated prior to the bank holidays. M.Rovibnskiy says: “Here is an example from our practice: the transaction was executed last year, the asset was transferred, the subject matter of the agreement completed, a fixed share of the funds reserved at the Cyprus bank account. The seller is currently worried if he will receive the money. However, the payer may assume the position that his obligations are fully performed and that he is not responsible for the Cyprus events”.

Lawyers of the whole world are currently trying to answer the question if a company may refuse to perform under its agreement in connection with the Cyprus events. M.Rovinskiy explains: “In this case, it is essential to know the exact wording of the parties’ obligations in the agreement in the event of force majeure. Most of the agreements that I have managed to look over stipulate that companies are exempt from performance under the agreement in the event of natural disasters, but not only then. The payer’s impossibility to control the banking operation may also become the cause for refusal to perform. Force majeure may include nationalization, expropriation, and imposition of currency banking limitations. We as lawyers will have to answer respond to the creditors’ questions whether debtors may be obliged to make payments from other accounts located outside of Cyprus. As a rule, agreements do not stipulate the exact accounts, from which the payments should be made. Besides, creditors may declare no force majeure, if the agreement terms for such circumstances are narrow”. <…>

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