The liquidation method can be either voluntary or compulsory. The Board of Directors must select the most suitable mechanism for the dissolution of a company, depending on the circumstances. Part V of the Companies Law (Cap.113) is the main legal framework which regulates the liquidation procedure in Cyprus. There are three ways in which liquidation can be triggered:
- By the Court
- Voluntary either by its shareholders or creditors.
- Under the supervision of the Court
Liquidation by the Court:
A company may be liquidated by the Court if:
- The company has decided by special resolution that the company be liquidated by the Court;
- The company failed to submit the Annual Return to the Registrar of Companies or hold its statutory meetings;
- The company does not start operations within one year of its incorporation or suspends operations for an entire year;
- The number of members is reduced to less than seven in the case of a public company;
- The company is unable to pay its debts;
- The Court is of the opinion that it is fair and just to dissolve the company;
For these purposes, a Company is considered unable to pay its debts when the Company is indebted with a sum total exceeding €5000, the concerned creditor has served the Company with a written notice demanding payment of the incurred debt due and the Company failed to pay the sum due within three (3) weeks from the date the written notice was served; when a judgment was executed against the Company’s property but the execution failed to settle the debt; or, when the Court is satisfied that the Company is unable to pay its debts.
The company, a creditor, a contributor or any other interested party can file an application to the court for the company’s liquidation. Subsequently, the court will issue an order to that effect. A liquidator will be appointed by the Court to whom the administration and control of the Company as well as its property will pass. The liquidator, subject to the powers granted to him will have to secure that the assets of the Company are distributed to all of its creditors and to ensure that any remaining surplus is distributed to any person entitled to it. When the liquidation of the Company’s assets is fulfilled and every matter is settled, a petition for the final wind up of the Company is filed by the liquidator to the Court which, at its absolute discretion, will issue an order for its final dissolution.
Under Article 261 of the Companies Law, Cap. 113, a company may be liquidated voluntarily:
- when the period of the company’s duration, if any, (set by the articles of association of a company) expires; or
- when a company votes by special resolution its voluntary liquidation;
- when a company votes by extraordinary resolution that, due to its obligations, it may not continue operating and liquidation is advisable.
The company, after has approved the resolution for its liquidation, must deliver a notice of liquidation to the Registrar of Companies within 15 days from its approval. The Registrar of Companies proceeds to its registration and arranges for its publication in the Official Gazette of the Republic. The voluntary liquidation date of commencement is considered to be the date of approval of the relevant resolution.
Voluntary liquidation can be made either by the members of the company or by its creditors. Different requirements apply for each case.
Voluntary liquidation by members
A company can be liquidated voluntarily by its members provided that:
- the company resolves under a special resolution taken at an Extraordinary general meeting that the company be wound up voluntarily, and
- the Company can pay off all its debts within 12 months of the date of the special resolution.
Prior to the Extraordinary General Meeting, the directors must prepare several documents which need to be presented at the meeting. These include:
- audited financial statements which are relevant to the liquidation date;
- Statement of Assets and Liabilities (up to the day of the commencement of the Liquidation) and a Declaration of Solvency which must be sworn before the Registrar of District Court by the majority of the directors, stating that the Company can pay off all its debts within 12 months from the start of the liquidation.and
- a written resolution approving the solvency statement.
The declaration must be delivered to the Registrar of Companies within 5 weeks before the date of the resolution for the liquidation.
At the Extraordinary General meeting the company will approve the liquidation of the company and also appoint the liquidator in order to settle any outstanding business and distribute the assets of the company. Provided that the company approves the liquidation by Special Resolution) such resolution will have to be submitted to the Registrar of Companies within 15 days of its passing so that this is published to the Government Gazette.
Together with the above resolution and within 14 days of his appointment the Liquidator must publish in the Government Gazette and deliver to the Registrar for registration the notice of his appointment.
Once the winding up and the affairs of the Company is completed the Liquidator must prepare an account showing how the winding up took place and how the company’s property was distributed. He then calls for a final general meeting to present such account and provide explanations . Such final General Meeting is convened by the Liquidator by publishing a notice in the Government Gazette setting the date, time and purpose and has to be published at least 1 month prior to such meeting.
Following publication, the members will convene the company’s final meeting.
One week later, the members must send a copy of the return of the final meeting and the liquidator’s statement to the registrar.
Three months following the date on which the last documents have been submitted, the registrar will issue a relevant certificate and the company will then be deemed dissolved.
Voluntary liquidation by creditors
A creditors’ voluntary liquidation process is initiated by creditors and occurs only where the company cannot pay its debts.
The company arranges for a creditors’ meeting to be convened whereby the resolution for the voluntary liquidation will submitted and sends notice of such meeting to all of its creditors. The company arranges for the notice of the creditors’ meeting to be published in the Official Gazette and in at least two local newspapers .
Prior to the creditors’ meeting, the company directors must:
- provide a statement of their position on the company’s affairs and a list of the creditors and an estimate amount of their claims; and
- send a notification simultaneously to both creditors and shareholders. Such a notice of the meeting must also be published in the Official Gazette and at least two local newspapers.
At the creditors’ meeting, the creditors and directors will need to agree the appointment of a liquidator. Following the liquidator’s appointment, a notice of such appointment must be submitted to the Registrar of Companies and published as well in the Official Gazette.
Finally, once the liquidator has settled all matters, draws up a liquidation account, showing how the liquidation was carried out and how the company’s assets were distributed. The liquidator then calls for a general meeting of the company and a meeting of creditors. The notice of such a meeting is published in the official gazette.
One week after the meeting has been convened, the liquidator must send a copy of the account and a report on the composition of the meetings held to the Registrar of Companies .In return, the Registrar will register all meetings and accounts provided. After three months following the registration of the accounts and meetings, the Registrar will issue a certificate and the company will be deemed dissolved.
The liquidation procedure takes approximately one year to be completed however may sometime take longer depending on the complexity of the case.
Information contained in this publication does not constitute any kind of advice on any particular matters and should not be considered as such. ATCA accepts no responsibility for clients’ decision