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Cyprus company: risks when used in an asset protection system

Story plot
A company registered under the law of Cyprus filed a lawsuit with the Russian Arbitration Court regarding the recognition of contracts of participation in construction as invalid. The right for such appeal was the fact that the company from Cyprus owned a share of more than sixty percent of the authorized capital of the developer, which sold office space at a low cost to a third party.

When a lawsuit was filed by a Cypriot company, all evidence was provided that it was entered in the Cyprus Commercial Register, which confirmed the status of the company both under Cyprus law and under Russian law as the plaintiff and owner of a share in the company.

In the course of the proceedings, the defendants indicated that the company was excluded from the register of trading companies in Cyprus, as a result of which the claim should be left without consideration.

The Cyprus company was mistakenly excluded from the Register during a trial in Russia and returned to the registry. However, in order to confirm the plaintiff’s procedural status in Russia, the Cypriot company needed to bring in an expert on Cyprus law to provide the court with an opinion on the recovery procedure in the registry.

According to the expert’s conclusion, after the company is excluded from the register under the law of Cyprus, such a company can be reinstated in it by court order, while the company does not lose its procedural status during this period (continues to be a plaintiff or defendant in court). The court accepted the arguments of an expert on the law of Cyprus.

Judicial Act: Resolution of the Fifteenth Arbitration Court of Appeal of May 7, 2018 in Case A32-28693 / 2016
Court position
1. The court found that the exclusion from the commercial register occurred during the consideration of the case in a Russian court, and at the time of filing the claim all the documents were in accordance with the law and confirmed the right of the Cypriot company to act as a plaintiff.

2. The court took into account the conclusion of the expert on the law of Cyprus and came to the reasonable conclusion that the plaintiff did not lose legal capacity throughout the entire period of the consideration of the case: at the time of filing the claim, he was included in the register, then deleted, but without loss of status, subsequently restored in the registry.

3. In addition to the expert’s opinion, the court examined the protocols for examining the website of the Cyprus registrar with a notarized translation, copies of the official publication with a notarized translation, as well as an exclusion certificate with a notarized translation, which were provided as evidence by the defendants.

Comments
1. Filing a lawsuit in Russia, a foreign company submits it in accordance with Russian law, including in accordance with our legislation, confirming its ability to act as a plaintiff or defendant in court.

2. Supporting documents require a lot of formalities: affixing an apostille, notarization of translation and others. The package of documents in any case differs from the package of documents of the plaintiff or defendant, created by the law of Russia.

3. As can be seen from the case under consideration, a foreign company as a participant in a Russian company complicates the process of protecting its rights and assets both in time and in finance.

4. The case has well disclosed the principle of competition between the parties under Russian law: for the evidence of the defendants about the exclusion of the plaintiff from the local registry (notarized inspection of the registrar’s website, notarized translations of the official publication and certificate), the plaintiff provided an expert opinion on Cyprus law. The court, having analyzed the arguments of both parties, made a decision.

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