As Article 203 of the Companies Act states, there are several ways to start official liquidation of a company in Cyprus. Among them, such as judicial cancellation, voluntary and such that is subject to supervision by the court.
Cyprus law does not have a separate document that regulates bankrupt companies. The cancellation of such a firm can be carried out by all the above methods. The lump-sum liquidation of the bankrupt company contains specific characteristics that will be disassembled and discussed in terms of each method.
Article 211 of the Companies Act provides for judicial closure under such circumstances.
- The general meeting of the shareholders of the organization decided to annul it in the order established by the court.
- The registrar did not receive an installation report or a meeting was held within the time limits stipulated by law.
- The enterprise does not work for one year from the date of its execution or has ceased to work more than for a year.
- The number of shareholders is less than 7. The court must be given a time limit to exclude the source of cancellation. Continuation of the closure will be possible only if the firm immediately declares that it is not possible to increase the number of shareholders, or failed to cope with the term appointed by the court.
- The Company can not fulfill all agreed obligations.
- From the point of view of the court, an equitable solution would be to terminate the work of the organization.
Article 212 of the Companies Act provides for several cases where a firm can be considered bankrupt:
1) if the organization has not paid the lender an amount that exceeds 854 euros on time, and he presented her with an account that remained in the registered office, and she did not repay the debt for three weeks or found a compromise with the lender;
2) when it is impossible to execute a court decision, which acts in favor of the lender;
3) if the court institution provides evidence that the enterprise is unable to pay off debts, considering all the obligations agreed.
The application for the termination of the company’s functioning should come directly from:
- an individual or group of assignors of the firm;
a certain number of shareholders;
- all the above-mentioned persons collectively or separately.
The shareholder of the organization has no right to file an application for the termination of the company’s functioning under such circumstances:
- The number of shareholders is less than the law provides;
- he owns his shares for less than six months and received them in the case when rights and obligations passed from one subject to another.
The lender can not file an action for the liquidation of the company when its reason is the absence of an installation report from the registrar or the absence of an installation meeting within the time limit specified by law. Based on this, the statement of claim can only be made by the shareholder and not earlier than 2 weeks from the day when the specified obligations were overdue. The document can not be submitted by the alleged or still failed assignor if the court does not allow this. The law provides for cases when the Prosecutor General may become the initiator of the closure of the enterprise.
In the event that a voluntary cancellation has already begun for the firm under the supervision of the court, the prospective director or other authorized person has the right to file a claim for judicial liquidation of the enterprise, if this process can not continue by the method by which it was carried out.
The decree on the beginning of the termination of the company is issued after the court receives the relevant document. In cases where, up to this point, the company decided to liquidate voluntarily, it is generally accepted that annulment is not claimed by the court, but by this decision. In addition, if the judicial authority does not establish the fact of fraudulent actions, all manipulations that occurred during the voluntary cancellation, until the time when the directive on closing the company was adopted, will be recognized as lawful. Otherwise, the liquidation will be deemed to have been started from the submission of the directive by the court.
A copy of the document that the court will issue will be sent to the organization and to its registrar, after which the latter will make an entry in its register. If the enterprise is closed by the court, then all actions for transferring the property belonging to it, including shares, changing the status of shareholders, which are made after the issuance of the directive, must be approved by them, otherwise, they will not be considered lawful. The company that is in the process of closing, can not be submitted any lawsuits, except those provided for by the court.
If the organization is liquidated by the ship’s authority, then an arbitration manager will be involved. Article 222 of the Cyprus Companies Law stipulates that this is a state official appointed by the Council of Ministers. Article 233 states that the registrar of the firm or another person who is chosen by the court, according to the relevant application, can become the manager. After the publication of the directive, which announces the beginning of the termination of the company or the definition of the liquidator, the organization must provide the arbitration manager with a report on how the cases are conducted, certified by the declaration of authenticity. There must be full information about the assets, debts and liabilities of the enterprise. Also, the report identifies lenders (name, address, occupation), lists all documents that belong to the assignor, the date of their design and other information required by law and required by the authorized person.
If the closure is carried out by court, the liquidator shall perform the following duties:
- Representation of the firm in court, both for the plaintiff and for the defendant;
- management of the activities of the enterprise required for cancellation;
- Involvement of a human rights defender or other lawyer to exercise his powers;
- payments to lenders;
- reaching agreements with lenders;
- sale of the organization’s property (at auctions and in private transactions);
- making transactions on behalf of the company;
- collecting evidence of bankruptcy;
- acceptance and signing of checks on behalf of the company, as well as guarantee letters and other payment documents;
- making payments, according to the bonds of the firm;
- appointment of an independent agent;
- commission of other authorities for the liquidation of the organization.
The court controls the work of the liquidator and has the right to change it if it does not cope with its duties. The judicial authority can continuously monitor the cancellation process by requesting information on the work done. He can also conduct an audit of accounting calculations.
The main duty of the person who liquidates the company is the possession, sale and property of the firm between creditors and shareholders. He can hold meetings of shareholders and lenders to find out their opinion. Article 234 of the Companies Act stipulates that the liquidator may apply to the court in order to receive instructions on the performance of his direct duties. According to Article 237 of the Companies Act, a person who commits a closure must at least 2 times a year provide the arbitration manager and the board of directors with an interim liquidation balance sheet.
After the termination process has been completed and the liquidator has fully recovered the company’s debt, will fulfill its obligations to the lenders and distribute the remaining capital, if any, between the shareholders, he declares in court that the liquidation is over, and the court in turn obliges him to provide the relevant report .
The judicial authority must issue an order for the final termination of the firm’s functioning, the date of which will be considered the cessation of its existence. According to Article 260 of the Companies Act, within two weeks the liquidator submits this order to the registrar of the organization, and he writes an entry in the register.
Voluntary closure of a firm can be carried out under the following circumstances:
- the term of the enterprise’s activity expires, which is established by its charter or there are grounds for cancellation, which they are provided for;
- the shareholders’ meeting decided to cancel;
- The decision to close was taken at an extraordinary meeting of shareholders, in connection with bankruptcy.
This is governed by section 261 of the Companies Act. According to Article 262, after the decision to close is made, the company must submit an announcement within two weeks to a government official bulletin. From the moment when it will be rendered.
Appropriate confirmation, the liquidation will be considered started. Since that time, the organization must stop all work related to commerce, except that which may be useful in this period. The firm is prohibited from selling and ceding shares, except when the liquidator has permission to do so. In this period of time also the number of shareholders can not be changed.
Before making a decision on the voluntary closure of the company, the board of directors should monitor the internal audit and be sure that it will settle with creditors no later than one year after the cancellation. It is also necessary to draw up a statement on the security of the enterprise. To it it is necessary to add the report on the finance which includes the data on property and its price, debts, calculations of expenses for the termination of work. This application will be valid in case it is accepted by the Board of Directors not earlier than 5 weeks after the general meeting, where they considered the issue of termination of work. Such a process is called “liquidation by shareholders”, which is stipulated in Article 266 of the Companies Act.
To conduct closing and distribution of property, a liquidator or a relevant commission is appointed. The appointment takes place at a general meeting of shareholders to stop the work of the firm and divide its assets among lenders, and then shareholders. This meeting is also authorized to appoint payments to the liquidator. Since the appointment, directors have been deprived of their authority. A decision that was adopted at a general meeting of shareholders or disapproval on the part of the liquidator can challenge this fact.
To pay off with lenders, some of the assets can be sold to another organization. Such sale is carried out by the liquidator or the commission, by the decision of the shareholders’ meeting. Any transaction for the sale of company assets is mandatory for its shareholders.
If the appointed person concludes that the enterprise is not able to fulfill all of its obligations within the specified timeframe, he will convene a meeting of creditors, present to them a report on the active and passive income of the organization. The notice of such a meeting should provide that lenders can re-elect the liquidator, who will conduct the procedure and divide the assets of the firm, instead of the one appointed by the enterprise. If creditors fulfill such an assignment, they will terminate the work as voluntary.
If liquidation takes place more than 1 year, the authorized person or commission must collect a general meeting of shareholders. This procedure is carried out every year after the cancellation of the company. At this meeting, the liquidator or commission provides information containing all the transactions that he conducted with the assets of the organization during the year. This process is governed by section 272 of the Companies Act.
After the liquidation procedure is completed and the firm settles with debts to the lenders, the liquidator or the commission, a closing balance is drawn up, describing the course of the termination, all the assets that are sold and those that are performed to the creditors are dealt with. To submit this report, the liquidator will organize a special meeting of shareholders. A month before the final shareholders’ meeting, an announcement must be submitted to a government official bulletin. It should contain the date, time and place of the meeting, as well as the reason.
Within seven days after the meeting, the liquidator or commission sends to the registrar a report on the conduct of the final meeting with the date and total and a copy of the balance sheet. The registrar enters the data into the register and after 3 months the enterprise has finally stopped working.
Lenders will voluntarily liquidate if the company goes bankrupt. It is carried out when the firm was unable to submit a statement of solvency. In this case, on the same day, when a general meeting of shareholders takes place, or on the next day a meeting of lenders should be appointed. Such a meeting should also be published in the Gazette (the bulletin that was mentioned above) and not less than in 2 media of local significance that are distributed where the main premises of the company are located.
At the meeting of creditors, it is necessary to provide information on the material situation of the company, property, value, the valuation method used, as well as the register of creditors and the estimated amount of claims that they exhibit. At a meeting of this kind, at least one representative of the board of directors is present.
In liquidation initiated by lenders, they must propose a candidate who will engage in the closure of the enterprise and in the distribution of its assets. Such a proposal should be made by the board of directors. If the proposed candidates are different, the decision is made in favor of the creditors. If the lenders can not reach a common decision regarding the liquidator, a board of directors will be appointed. Each of the parties within a week after the meeting may file an appeal to the court to appoint a liquidator, whom the board of directors will propose, or a commission of applicants nominated by both parties.
At a meeting of lenders, a monitoring committee may be selected, which will consist of creditors, but there should be no more than 5. The board of directors is also allowed to choose such a committee. If a dispute arises between the members of the committee, they, according to Article 278 of the Companies Act, may file a claim in court.
The liquidator has the following rights and duties:
- Full-scale performance of payments to creditors;
- reaching agreements;
- reaching consensus on debts and claims;
- organization of general meetings of shareholders and lenders;
- repayment of debts and settlement of legal relations between shareholders.
Article 286 of the Companies Act states that if the commission is engaged in liquidation, then the duties of the liquidator can be performed by all its members as well as by individual candidates.
The property that remains must be distributed among shareholders, according to the size of their shares. Article 285 provides that all liquidation costs and liquidation fees are paid in the first place.
In the event that the company decided to voluntarily terminate the work, the court has the right to issue an order that says that the liquidation will continue voluntarily, provided that there will be supervision by the court that guarantees the interests of all parties that have applied to the judicial institution. The application is allowed to be submitted to both creditors and shareholders. It is considered in the same manner as the application for the annulment of the company by a court, this is provided for by Article 294 of the Companies Act. All actions when closing a firm under judicial supervision are carried out with the appropriate permission of the court. He can additionally appoint a liquidator or members of the commission.
Article 295 of the Companies Act states that the court has the right to impose any restrictions on the rights of the liquidator. Also, by order to pass the liquidation of an enterprise under its supervision, a judicial institution may determine the liquidator additionally or choose a new one. He is endowed with the same powers as the one established earlier. The court has the right to suspend the work of any liquidator. He shall take office from the moment the court issues the order for the cancellation of the organization under his supervision and, according to Article 297, will have the same powers as in the case of voluntary closure. The liquidator has the right:
- Receive and sign checks, letters of guarantee and other documents;
- pay off, according to the bonds of the firm;
- Execute the rights to manage the assets of any deceased shareholder.
In all other cases, all the same rules apply as in the case of judicial closure. The exceptions are such that they are stipulated in Appendix No. 10 to Companies Act;
- Article 224 provides for the company’s obligation to submit a financial report to the arbitration administrator;
- Article 225 states that the arbitration administrator must provide a report to the court;
- Articles 226-229 consider the powers of the court in the appointment of the liquidator;
- Article 234 refers to the rights and obligations of the liquidator and the exercise of their control;
- Article 235 provides for liquidator’s bookkeeping.
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