Introduction

Tangible movable property plays a central role in secured lending structures particularly in corporate and asset-based financings. This note outlines what is treated as tangible movable property, the main security devices used, and the key perfection and priority considerations under Cyprus law.

Definition

Any property that is not permanently affixed to land or buildings is tangible movable property. It includes goods and trading stock, equipment, works of art, aircraft and ships, shares and other securities.

Charges

The most common form of security over tangible property granted by Cypriot entities is a fixed or floating charge or both, usually documented in a debenture. A charge does not confer a proprietary interest in the charged assets but grants the chargee a right of control over the assets and their proceeds for the purpose of satisfying the secured obligations.

A fixed charge attaches to identified assets and restricts the chargor’s ability to dispose of them without the chargee’s consent. A floating charge hovers over a shifting pool of assets allowing the chargor to deal with them in the ordinary course of business until crystallisation.

In practice an “all-assets” debenture incorporates both fixed and floating charges over the borrower’s tangible movable property, present and future.

Share Pledges

Alongside charges, pledges remain a recognised form of security over tangible assets, especially over shares and share certificates.

A pledge over shares and share certificates is a possessory form of security as it involves the physical delivery of the share certificates representing the pledged shares to the pledgee, so as to achieve actual or constructive delivery of possession. The pledgee retains possession of the pledged property until the obligations secured by the pledge are fulfilled.

A share pledge creates a special proprietary right over the shares, as opposed to a right in personam. The pledgee can enforce the pledge and exercise its proprietary rights over the shares, no matter who the owner of the shares is. This right arises only once the pledgor has defaulted on the debt.

The Cyprus share pledge is a very useful tool in the hands of the pledgee as it can be enforced relatively easily out of court, with careful professional handling.

Save where the security is financial collateral, the formalities to create a valid and enforceable pledge over shares of a Cyprus company are the following:

• The pledge must be in writing, signed by the pledgor and the pledgee, and witnessed by at least two witnesses.
• The pledgee must give notice of the pledge to the company whose shares are being pledged.
• A memorandum of the pledge must be entered in the register of members of the company whose shares are being pledged.
• The company must issue and deliver to the pledgee a certificate executed by the appropriate company official confirming the registration of the pledge in favour of the pledgee.

A pledge of shares in a Cyprus company is not registrable under section 90 of the Companies Law, as it falls within the exceptions contained in the proviso to section 90(2)(θ).

Mortgages

Ships and aircraft are treated as specialised classes of tangible movable property and are typically financed through statutory mortgages.

A Cyprus-registered vessel, or any share in it, may be mortgaged as security for a loan or other material consideration. Unlike a simple charge, a ship mortgage creates rights in rem in the mortgaged vessel, alongside rights of possession and sale and the right to realise proceeds toward repayment.

Aircraft registered in Cyprus are likewise subject to aircraft mortgages, which are used extensively in aviation finance.

Security Assignments

In ship and aircraft financings it is common to take collateral assignments of insurances and earnings. Outside ship and aircraft finance, assignments by way of security are also widely used over book debts, bank accounts, insurance claims and other receivables.

Perfection and Registration Requirements

Where a chargor is a Cyprus-registered company, charges over tangible movable property are subject to mandatory registration with the Registrar of Companies, whereas pledges over shares of Cyprus companies are exempt from registration.

Ship Mortgages

The ship mortgage regime is formalistic and statute-driven. The mortgage instrument must follow the statutory form and be executed as a deed, typically supplemented by a deed of covenants setting out the commercial terms and the mortgagee’s powers.

A Cypriot corporate ship-owner must ensure:

• Registration as a charge over the vessel in the Cyprus Ships Registry.
• Registration of the mortgage and collateral covenants as a corporate charge with the Registrar of Companies.

Priority among multiple ship mortgages is determined by the order of registration on the Cyprus Ships Register, subject to the overriding priority of maritime liens.

Aircraft Mortgages and Security Assignments

For aircraft registered in Cyprus, a Cypriot corporate mortgagor must register the mortgage with both the Registrar of Companies and the Cyprus Aircraft Register.

Assignments by way of security granted by a Cyprus company (for example over insurances or earnings) are registrable as charges under section 90 of the Companies Law. Notice must also be given to the relevant third-party obligors to ensure priority.

Priority and Enforcement Considerations

Priority between security interests over tangible movables depends on the type of security and the applicable statutory or common law rules.

For corporate fixed charges, priority is generally determined by the date of registration with the Registrar of Companies. For floating charges, priority is affected by timing, contractual intercreditor arrangements and the terms of subsequent fixed charges.

For ship mortgages, registered order on the Cyprus Ships Register is key, subject to the super-priority of maritime liens.

Enforcement of security over tangible movables is primarily contractual, supplemented by common law duties and statutory mechanisms.

Typical enforcement routes include:

• Appointment of a receiver under a debenture
• Private or public sale of assets
• Realisation of assigned receivables
• Exercise of possessory and sale rights over ships and aircraft
• Arrest and judicial sale in admiralty or aviation proceedings

The secured creditor may apply the proceeds toward the secured debt in accordance with the ranking of claims.

Practical Structuring Points and Conclusion

When taking security over tangible movable property in Cyprus, lenders and their counsel should focus on:

• Selecting the appropriate combination of fixed charges, mortgages, security assignments and pledges tailored to the asset profile and business model of the borrower.
• Ensuring timely registration of all registrable charges with the Registrar of Companies and with specialist registers where applicable.
• Preserving possession-based security where relevant and avoiding conduct that may undermine such rights.
• Addressing priority through intercreditor or subordination agreements where multiple creditors share the same collateral pool.

Careful attention to formalities and timing is critical, as defects in registration or perfection can convert a fully secured position into an unsecured one on the borrower’s insolvency, notwithstanding otherwise robust documentation.

Note: Under Cyprus law, shares are technically considered intangible movable property. However, a Cyprus law share pledge is structured as a possessory security by delivery of the tangible share certificate, meaning that in practice it operates similarly to a pledge over tangible movables.

The information provided by

AGPLAW | A.G. Paphitis & Co. LLC

is for general informational purposes only and should not be construed as professional or formal legal advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, no representation or warranty is given. In no event will the author or any related parties be liable for any loss arising from reliance on this article.