Following the global effects of the COVID-19 pandemic, the recent war in Ukraine and the impact of the sanctions, many businesses in Cyprus have been severely affected in their ability to continue trading. Where a business cannot be saved or when a company decides to restructure its company through the formal insolvency process, a liquidator must be appointed to manage the entire liquidation process.
We are happy to inform you that our Founding Partner, Maria Kannava, who is a Licensed Insolvency Practitioner, possesses the necessary expertise and knowledge in Insolvency Law to undertake the role of Liquidator in order to assist you with the administration process.
What is liquidation?
Liquidation is the formal procedure of closing a business and liquidating its assets to raise money. Typically, the proceeds will be used to pay off the company’s creditors and any remaining funds will be distributed amongst the shareholders.
What is a liquidator?
The main purpose of a liquidator is to raise as much money from the company’s assets as possible and to call in all debts. This is done by carrying out an appraisal and selling the assets of the company at full market value.
What is the relevant law that regulates the procedures and requirements for the liquidation of Cyprus Companies?
The Companies Law, Cap. 113.
What are the methods of liquidating a company?
There are two ways a company can be wound-up / liquidated: voluntary or compulsory.
What is Voluntary Liquidation and in what circumstances can a company go into voluntary liquidation?
A company may proceed with its voluntary liquidation in the following cases:
When the the company’s duration period, as set out in the articles of association, has expired or when a certain event, as set out in the articles of association, has occurred;
When a company votes by special resolution its voluntary liquidation;
When a company votes by extraordinary resolution that, due to its obligations, it cannot continue its operations and/or it is impossible for it to continue its operations and that liquidation is therefore advisable.
When a company decides it has no reason for operating anymore
The voluntary liquidation date of commencement is considered to be the date of approval of the relevant resolution.
Who can trigger the voluntary liquidation procedure?
Voluntary liquidation can be initiated either by the members of the company or by the creditors of the company.
1. Voluntary liquidation by members
This is the procedure whereby members of a solvent company wish to bring the said company to a formal end by distributing the company assets at a surplus to its members.
The directors must make a statutory declaration that the company can pay its debts within 12 months from the commencement of the procedure. Following the passing of the special resolution and provided the relevant procedures are followed, the company will be deemed dissolved.
Why would members decide to voluntarily liquidate a company?
There are various business or commercial reasons why members would opt for this method:
for reorganisation and reconstructing purposes;
for liability purposes;
for tax purposes;
to change their activities and/or conduct of business;
to return capital to shareholders.
In most cases, triggering liquidation proceedings constitutes an effective and preferable mechanism for the distribution of assets within a company.
2. Voluntary liquidation by creditors
When a company is insolvent, (cannot pay its liabilities), it can only proceed with a voluntary liquidation by its creditors with the aim to distribute the insolvent company's assets among its creditors resulting in the company's permanent dissolution.
Both the creditors and the members of the company must call a meeting to appoint a liquidator who will undertake the process.
Why would the creditors decide to voluntarily liquidate a company?
This procedure is appropriate where:
the company is insolvent and cannot pay off its existing debts;
the company cannot be saved, leaving the creditors' voluntary liquidation as a last resort;
the creditors want to distribute all available assets within the company efficiently and/or recover assets with the appointment of a liquidator.
What powers do Liquidators have?
Liquidators are granted a wide discretion of powers whether it was triggered by the members or the creditors. These powers include the following:
entering and/or ending agreements and carrying out payments to creditors;
negotiating all debts and claims;
calling meetings with the creditors and members;
settling legal claims;
realizing assets
repaying existing debts; and
taking any necessary actions for the purposes of voluntary liquidation.
What is Liquidation by Court and when can it happen?
A creditor, the company itself or any interested party can file an application to the Courts for the liquidation of a company in the following cases:
the company is unable to pay its debts;
the company has decided by special resolution for its liquidation by the Court;
the company failed to submit the statutory report to the Registrar of Companies or to convene the statutory meetings;
the company does not commence its business within a year from its incorporation or suspends its business for a whole year;
in case of a public company, the number of members is reduced below seven and either it declares inability to increase its number of members or is unable to increase the number of members within the timelimit given by the Court;
the company is unable to pay its debts;
the Court is of the opinion that it is fair and in accordance with the law of leniency to dissolve the company.
In the above- mentioned scenarios, the Court will appoint a Liquidator, to whom the administration and control of the Company will pass. The liquidator will follow the same steps as in a voluntary liquidation (see above) and must duly prepare statements of receipts and payments on a six-monthly basis to be submitted to the Registrar of Companies.
When all the Company’s assets have been distributed to all the creditors and any surplus to the members, then a petition for the final winding up of the Company is filed by the liquidator to the Court, which at its absolute discretion, will issue the final order for dissolution.
In what order are the assets of the company distributed?
Upon liquidation, the assets of the Company will be distributed as follows:
1. Liquidators fees
2. Preferential debts (local and governmental taxes, unpaid wages and social security contributions)
3. Secured creditors
4. Unsecured ordinary creditors
5. Deferred debts
6. Any surplus will be accordingly distributed amongst the members
Can a dissolved company be restored?
A liquidated company can be only restored after a petition from any of its members or creditors.
The application must be filed to the court within 20 years from the publication of the liquidation notice. The Registrar of Companies sets out several conditions which must be satisfied for a company to be restored and if the petition is successful, the court issues an order restoring the company in the same position before its liquidation.
Author: Maria Kannava
For more information please contact us by sending an email to m.kannava@kannavalaw.com (Maria Kannava).
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