A comparative analysis of derivative action in Cypriot company law: Comparison with English company law and the prospect of statutory reform
| DOI | 10.1177/1023263X211063595 |
| Published date | 01 February 2022 |
| Date | 01 February 2022 |
| Subject Matter | Articles |
A comparative analysis
of derivative action in
Cypriot company law:
Comparison with English
company law and the
prospect of statutory reform
Georgios Zouridakis* and Thomas Papadopoulos **
Abstract
This article provides a comparative analysis of derivative action in Cypriot company law and sub-
mits some proposals for statutory reform on the basis of English company law. The derivative
action in Cyprus company law is based on common law and is not codified into the text of
Cyprus Companies Law-Chapter 113. Regarding the derivative action, the Courts of Cyprus
refer to pre-1960 English cases as authorities. However, as this article explains, Cypriot Courts
have not followed all developments with regard to the derivative action in English company
law, despite the original and elaborated solutions given to many difficult issues by English cases
and the statutory derivative claim under the English Companies Act 2006, which replaced the
old ‘exceptions to the rule in Foss v. Harbottle’regime. In fact, quite a few issues related to the
remedy are yet to be considered by Cypriot law; case law is scarce and uncertainty looms over
(potential) derivative claimants. Taking into account the origin of Cypriot company law from
English company law, the jurisprudential and legislative evolution of the derivative action in
English company law constitutes a fertile ground for the modernization of derivative action in
Cypriot company law. It is therefore hereby submitted that the Cypriot Courts and the
Cypriot legislator seek insight from the rich experiences and the multi-faceted evolution of the
English law on derivative action, in an effort to address existing problems and establish a modern
and functioning framework.
*
PhD (Essex); Research Fellow, University of Cyprus; Attorney-at-law (Greece); Former Lecturer in Law, University of
Essex
**
DPhil (Oxford); Assistant Professor of Business Law, Department of Law, University of Cyprus
Corresponding author:
Thomas Papadopoulos, Department of Law, University of Cyprus.
E-mail: papadopoulos.thomas@ucy.ac.cy
Article
Maastricht Journal of European and
Comparative Law
2022, Vol. 29(1) 62–84
© The Author(s) 2022
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/1023263X211063595
maastrichtjournal.sagepub.com
Keywords
Company law, comparative law, Cypriot law, derivative action, English common law remedy, Foss
v. Harbottle, statutory reform
1. Introduction
When it comes to shareholder remedies, it would be no overstatement that the derivative action has
been the most popular ‘export’of common law. Throughout the decades (and with increased fre-
quency in the past 30-odd years), jurisdiction after jurisdiction, regardless of the legal family
they belong to, instituted its own version of the remedy. A (baseline) globalization
1
of sorts
occurred regarding shareholder protection (and corporate governance), but that is not the end of
the story. Law evolves. But for few exceptions, common law countries have –at least in part –
replaced the common law version of the remedy with statutory provisions, to varying degrees of
success. Cyprus is one of these exceptions.
Cyprus might be small in terms of territorial size and population, but it hosts registered offices of
many companies of international significance;
2
and is widely regarded to be a financial hub, histor-
ically profiting from its geographical position and offshore status. Following its accession to the EU
in 2004, Cyprus was not considered to be “offshore”any more. However, it never lost the mentality;
attracting foreign capital has always been high on the agenda. Indicatively, Cyprus had the lowest
corporate tax rate at the beginning of its EU membership,
3
whereas currently, at 12.5% it still is one
of the lowest in the EU, behind only Bulgaria and Hungary.
4
Unsurprisingly, Cyprus not only con-
tinues to be the most popular destination for capital coming from former USSR countries,
5
but is
confidently becoming internationally competitive in areas such as Venture Capital
6
and FinTech.
7
In fact, Cyprus is a mixed legal system,
8
where company law is based on English common law
and the Cyprus Companies Law –Chapter 113 (Cap. 113) is based on the English Companies Act
of 1948. After the independence of the island from the British rule in 1960, it was left to the Courts
1. See also M. Siems, ‘Private Enforcement of Directors’Duties: Derivative Actions as a Global Phenomenon’,in
S. Wrbka, S. Van Uytsel, and M. Siems (eds), Collective Actions: Enhancing Access to Justice and Reconciling
Multilayer Interests? (CUP, 2012), p. 115.
2. Notable examples being eToro, Wargaming, and, before its acquisition by Rakuten, Viber.
3. See P. Demetriades, A Diary of the Euro Crisis in Cyprus: Lessons for Bank Recovery and Resolution (Springer, 2017),
p. 58
4. Concise data available at https://tradingeconomics.com/country-list/corporate-tax-rate?continent=europe.
5. We read in V.A. Andreev and T.V. Varkulevich, ‘Does Russia Overcome the Processes of Capital Flight Economy?’,11
International Journal of Management (2020), p. 167: ‘Deposits of Russian clients in Cyprus amounted to about €3
billion by the end of the summer of 2018. For six years before, only Russian firms, not taking the individuals, held
in Cyprus some about 19 billion USD (€14.8 billion at the then current rate).’
6. S. Bouras, ‘Dismal Performance by Greece in Venture Capital Investments; Second Last in EU’,Business Daily,24
April 2021. www.businessdaily.gr/english-edition/39959_dismal-performance-greece-venture-capital-investments-
second-last-eu.
7. L. Stokes, M. Pelosi, and D. Golube, ‘Cyprus: Transitioning into a New Crowdfunding Hub’,IFLR, 4 June 2021,
www.iflr.com/article/b1s3l15zjmhf2f/cyprus-transitioning-into-a-new-crowdfunding-hub.
8. N. Hatzimihail, ‘Cyprus as a Mixed Legal System’,6JCivLS (2013), p. 37, N. Hatzimihail, ‘On Law, Legal Elites and
the Legal Profession in a (Biggish) Small State: Cyprus’, in P. Butler and C. Morrris (eds.), Small States in a Legal World
(Springer, 2017), 213, S. Symeonides, ‘The Mixed Legal System of the Republic of Cyprus’[2003] Tul. L. Rev. 441.
Zouridakis and Papadopoulos 63
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