Cyprus: Fraudulent Transfers of Property to Defraud Creditors

Cyprus: Fraudulent Transfers of Property to Defraud Creditors

 


In the event that a person owes an outstanding debt to a lender in Cyprus; (going forward referred to as the borrower) any consequent action to separate or alienate movable or immovable property aiming to defraud a creditor are considered to be fraudulent and as such can be annulled via a court order.

 In order for a lender to proceed; a prerequisite is required, namely:

  1. The existence of a court order for the debt’s repayment.
  2. The existence of fraudulent acts against the creditor (regardless of whether they were made before or after the filing of the action on the basis of which the judgment was issued).

Unlawful Acts as per Cyprus Legislation

Provided that they are made for the purpose of preventing or delaying the satisfaction of the judgment debt; acts aiming to defraud the creditor include but are not limited to:

  • The donation or giving away any assets to a third party.
  • The transferal of ownership a borrower’s property to a third party.
  • Donation of a borrower’s assets to a third party.
  • Alienation or isolation of a borrower’s property; immovable or otherwise to a third party.

The Burden of Proof

The burden of proof falls on the borrower as the borrower’s intent is the decisive factor to ascertain whether the transfer or disposal will be considered to be legitimate for the benefit of family, or a fraudulent action to evade creditor payments.

According to Cyprus law, unless conflicting evidence is supplied, the donation or transfer of a property were made to defraud the judgment creditor. The burden of proof in such cases is on the borrower in addition to the person acquiring the property, who must show he acted in good faith.

The relevant legislative provisions aim to secure the property of the judgment debtor, to remain available for the enforcement of the court ruling and subsequent satisfaction of the judgment debt.

The Cyprus Supreme Court issued a ruling about this matter in a recent case regarding the unlawful transfer of property and stated that fraudulent transfer in the name of the borrower, with the simultaneous registration of the judgment debt and can be issued as a charge over the property or assets.

The Court added that there are similar requirements stating that any action such as the donation or sale of assets intended to prevent or delay investigations creditors will be considered as fraudulent, by presumption.

Constituting a Valid Defense

The only defense that may be submitted by the accused in such cases is to prove that the said act was made to a relative or a purchaser in good faith and without any intention to prevent or delay the creditor in the recovery of the judgment debt.

As per Cyprus legislation, a bone fide relative can be considered in relation to an act made for their legitimate benefit, with reasonable consideration to be the following:

  • Spouse.
  • Father.
  • Mother.
  • Brother.
  • Sister.
  • Child.
  • Grandchild.

The bona fide relative or beneficiary together with for any transfer or encumbrance made (including the exchange with property or assets of equal value) for the purpose of the following of that person constitutes valid intent:

  • Future or current education funding purposes.
  • Medical treatment or rehabilitation purposes following sickness or addiction.

The court may declare any fraudulent transfer, encumbrance or separation of the asset by any borrower to be void, after considering the interests of any bona fide third party following the creditor or lenders filing of the application.


 

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