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Categorized | Economy

Church of Cyprus wins bailout lawsuit

Posted on March 31, 2013

The ink was barely dry on the bailout of the Cypriot banking system last week when the legal challenges began rushing in, with local lawyers backed by influential business figures already winning some small victories.

The first serious challenge was launched by the Church of Cyprus, which has big business interests on the island, questioning the legality of shareholders in the Bank of Cyprus having their equity stakes taken as part of the bailout mechanism.

    “The expropriation of property is contrary to the constitution of Cyprus and the European Declaration of Human Rights,” said Kypros Chrysostomides, partner at local tax firm Dr K Chrysostomides.

    The Church, which owns equity in the Bank of Cyprus, successfully petitioned the government through the courts to reverse the decision last Thursday. As a result, all shareholders in the Bank of Cyprus would be issued new Class D shares that had few voting rights, the government said on Sunday.

    Late on Friday, a group of local lawyers from Stelios Americanos said they had won an interim injunction to block the haircut on the deposits of its plaintiffs in the Bank of Cyprus, which is the very heart of the bailout mechanism.

    Officials said that this would probably be resolved without it going to court, as the finance ministry and the central bank have the right to appear before the Supreme Court to try to lift the injunctions.

    But if not, it could take months or even years to resolve, further complicating the bailout process. “Usually the courts will take more than a year to decide such an issue,” said Alecos Markides, the former Cypriot attorney-general and member of parliament and now a partner at Markides, Markides & Co, the local law firm.

    Similar attempts at legal action are expected from companies around the world attempting to protect their deposits which, even if unsuccessful, are set to further muddy the already complex legal situation surrounding the bailout. The Financial Times has been contacted by several Russian lawyers outlining litigation options for their clients.

    Speaking on condition of anonymity, several businesses in Ukraine, a country estimated to have several billion US dollars parked in Cyprus’s banks, said they were contemplating legal action to protect their deposits and right to free financial flows.

    The third main legal issue to have arisen this week is widespread claims that ordinary Cypriots were mis-sold high-risk securities in the Bank of Cyprus and Laiki bank, not understanding the risk they were taking.

    The government has decided to create a special arbitration body to deal with bondholders who claim they were misled into buying high-risk securities.

    Additional reporting by Courtney Weaver