Company Liquidations
Last Updated on Tuesday, 11 May 2010 08:33
As per Cyprus Company Law Cap.113 the liquidation of a Cyprus Company may be effected in the following three ways:
- Voluntarily winding -up by the members or creditors
- Liquidation Under the supervision of the Court
- Winding up by the court or a compulsory liquidation
Further, instead of liquidating a company you may opt to have the company stricken-off.
Process
A petition for the winding up of a company by the Court may be made by:
- the company;
- any creditor (including a contingent or prospective creditor);
- a contributory; or
- a member;
- The Official Receiver may present a petition against a company that is being wound up voluntarily.
On hearing the petition, the court may dismiss it, adjourn it, or make any order that it deems fit. If a winding-up order is made, the liquidation will be deemed to have commenced at the time of presentation of the petition unless a resolution has previously been passed for a voluntary winding up, in which case liquidation will be deemed to have begun with the passing of the resolution.
Timing
Proceedings of compulsory liquidation generally take several years to be completed. On the making of a winding-up order the company may no longer trade, except with the sanction of the court (or if there is one, the committee of creditors) for the beneficial realisation of assets. No action may be proceeded with, or commenced against, the company except by leave of the court and subject to such terms as the court may impose (Article 97, Companies Law). Any disposal of the company's property that takes place after the commencement of winding up and any transfer of shares or alteration in the status of the members of the company after the commencement of winding up will be void unless the court orders otherwise.
All the company's assets vest in the Official Receiver, who is responsible for realising them and distributing the proceeds among the creditors. The directors are required to provide the Official Receiver with a statement of affairs detailing all the company's assets and liabilities, including prospective and contingent assets and liabilities. The Official Receiver (or liquidator appointed to act in his place will realise the assets, determine the amount of individual claims and distribute any funds in accordance with the law.
Voluntary Liquidation
Members' Voluntary Liquidation
Members' voluntary winding up begins with the making of a statutory declaration by the director(s), or a majority of them if there are more than two. The statutory declaration is made only after having enquired fully into the affairs of the company, and the directors consider that the company will be able to pay its debts in full within a maximum period of 12 months. (Article 266(1), Companies Law).
The statutory declaration must be made and delivered to the Registrar, five weeks before the date the directors' resolution to wind up the Company is made. The directors' resolution is also sent to the Registrar. (Article 266(2), Companies Law).
Once the statutory declaration has been delivered to the Registrar of Companies, the liquidation is initiated by the passing of a resolution of members to wind up the company. A special resolution will be necessary unless the articles of association of the company
- provide for a fixed period for the duration of the company or
- specify that a certain event should occur for the winding up, in which case an ordinary resolution is sufficient.
The critical factor is the ability to pay debts in full within a year of liquidation. If the directors are unable to make the statutory declaration of solvency, or if having been appointed, the liquidator forms the opinion that the company will be unable to pay its debts, the liquidation must be undertaken as a creditors' voluntary winding up (see below, Creditors' voluntary liquidation).
By definition, creditors in a members' voluntary liquidation must be paid in full within a year from the commencement of the liquidation. Realisation and distribution of residual assets to members and formal conclusion of the winding up may take longer. If the liquidation continues for more than one year the liquidator must convene annual meetings of members and present accounts before them. No consents and approvals are required.
The effect of liquidation is to vest the assets in the liquidator as trustee. The company may no longer trade except to the extent required for the beneficial realisation of the assets. The liquidator has the same extensive powers as a liquidator in a compulsory liquidation, to do whatever is necessary to achieve a beneficial winding up. Apart from needing the sanction of the court or the committee to settle any category of claims in full, or to make compromises of claims, he may exercise those powers without reference to anyone (Article 286, Companies Law).
The liquidator may also apply to the court to determine any issue or to exercise any of the powers available to the court in a compulsory liquidation (Article 290, Companies Law).
Creditors' Voluntary Liquidation
Creditors' voluntary liquidation begins with the convening of two separate meetings; one for members and the other for creditors: (Articles 276 to 278, Companies Law):
1. The purpose of the members' meeting is to pass a resolution to wind up the company and appoint a liquidator;
2. The purpose of the creditors' meeting is to
- present creditors with a statement of the company's financial position and a list of creditors' claims
- nominate a liquidator to act in place of the liquidator appointed by the members
- appoint a committee of inspection of up to five persons to assist and oversee the liquidator and fix his remuneration.
If the creditors and members nominate different people to act as liquidator, the creditors' wishes will prevail, subject to a right to apply to the court (Article 277, Companies Law).
The creditors' meeting must be convened on the same day as the members' meeting or the following day and notice of the meeting must be posted to creditors simultaneously with the notice to members, and advertised in the official Gazette and two local newspapers.
Creditors' voluntary liquidations generally take years to complete. If the liquidation lasts longer than a year, separate annual meetings of members and creditors must be held within three months of each anniversary to consider the conduct of the liquidation and the liquidator's receipts and payments account.
The effect of liquidation is to vest the assets in the liquidator as trustee. The company may no longer trade except to the extent required for beneficial realisation of the assets. The liquidator has the same extensive powers as a liquidator in a compulsory liquidation to do whatever is necessary to achieve a beneficial winding up. Apart from needing the sanction of the court or the committee to settle any category of claims in full, or to make compromises of claims, he may exercise those powers without reference to anyone.
Liquidation under the Supervision of the Court
When a resolution has been passed by the Company to wind up voluntarily, the court may make an order directing that the voluntary winding up shall continue, but subject to the supervision of the Court, and on such terms as the court thinks just.
In practice supervision orders are made extremely rarely.
An application is made to the Registrar of Companies by a Director of the Company to have the name of the Company struck off the register pursuant to S.327 of the Companies Law (Cap. 1 13). The declaration must be filed with the Registrar of Companies stating that the Company does not have any activities and/or has ceased operation and it has no assets or liabilities.
The Company or any member or creditor who feels aggrieved by its striking off the Register may object to its being strike off, or, after it's striking off of the Register may apply to the Court so that the Company may be restored. The application must be made before the expiration of twenty (20) years from the notice published in the official Gazette relating to the Company's striking off.
Any nominee directors provided by a service provider should be replaced before taking any action for the striking off of the Company.
