Recent amendment to Companies Law on existing and new Variable Capital Investment Companies

The recent Law N.150(I)/2021, introduced on 5 November 2021, amends the Companies Law, Cap. 113 (the “Law”) with regards to the establishment and operation of Variable Capital Investment Companies (“VCICs”).

The legal changes brought by this amendment relating to VCICs are as follows:

Offer for subscription: The provisions in the Law relating to offers for subscription do not apply in relation to shares/debentures of Cyprus or offshore companies which are governed by (1) the Public Offer and Prospectus Law (“Prospectus Law”), and/or (2) Open-Ended Undertakings for Collective Investments Law (“UCI Law”) and/or (3) the Alternative Investment Funds Law (“AIF Law”).

Notification for consolidation of share capital: The new sub-section 61(1A) of the Law permits limited liability companies which will be converted into VCICs, to consolidate their existing share capital comprised of a specified number of shares with par value and re-divide it into shares that carry no par value. For the implementation of this conversion, a relevant notification (Form HE16) and court order (if applicable) must be submitted to the Registrar of Companies (“RoC”) for the conversion.

Information included in Annual Returns: According to the amended section 118(1)(c) of the Law, VCICs are exempt from including in their annual returns certain information, since by virtue of their VCIC nature such are not applicable to them.

New Part “XA”: The amending law introduces a new Part XA in the Law on VCICs mainly covering the following:

• The Memorandum and Articles of Association of VCICs must follow the model articles provided under the new Table “E” of Annex 1, and provide that:
  • the share capital of the company is equal to the respective value of the issued share capital of the company;
  • the share capital is divided to a fixed number of shares, without assigning a nominal value to them;
  • The respective number of issued shares shall not be less than the minimum number prescribed in the memorandum of association and, in case the share capital is divided into different classes of shares, the class or classes of shares that constitute the lowest number mentioned above. (The minimum number of shares corresponds to the minimum initial capital as per the UCI Law or AIF Law.);
  • the fair value of the issued share capital is always equal to the value of the company’s assets net off its liabilities;
  • the shares of the company may be redeemed by the company, at the request of any of the shareholders, directly or indirectly from the assets of the company, provided that the number of the issued shares does not fall below the minimum number prescribed in the Memorandum of Association of the company.
• Amendments to the Memorandum regarding the number of shares, the minimum number of issued shares and any classes of shares, shall be effected with an ordinary resolution. In such case, the VCIC must file to the RoC, within one month, a copy of the said resolution and a relevant notification (which may, at the option of the company, be accompanied by a copy of the amended memorandum).
• Redemption of shares by the VCIC can only take place if the said shares are fully paid and in accordance with the company’s Articles of Association, while there is no requirement to create a capital redemption reserve account for this process.
• The register of members of VCICs is kept in accordance with the UCI Law/AIF Law.
• VCICs may be reinstated within a maximum of two years from the date of their strike-off.

 Strike-off from the register: As per the new sub-section 327(2A)(c) of the Law, a VCIC may be struck off the register if it fails to submit a special resolution to the RoC by 05 November 2022, with which the VCIC amends its Memorandum and Articles of Association to be compliant with the provisions of the new Part XA outlined above.

Our Financial Services, Funds and Capital Markets team will be happy to support clients with the new regulatory requirements promptly and efficiently prior to the lapse of the above deadline.

Authors: Andria Koukounis, Polyvios Nikolaou