INTRODUCTION
Liquidation is the formal procedure/method by which the life of a company is terminated.
Especially in cases where the company is facing insolvency, i.e. it is unable to pay its debts, liquidation is the method by which the company will be wound up, the assets will be materialised, and the proceeds will be distributed among creditors, employees, and other parties, in line with an order of priority, as per the provisions of the Cyprus Company Law.
A Cyprus company may be liquidated either voluntarily, by the decision of its members or its creditors, or involuntarily by the decision of the court following a court application.
In both cases, the appointment of a liquidator (a Licensed Insolvency Practitioner) is mandatory for the conduct of the liquidation procedure. The liquidator once appointed will be responsible to cease the activities of the company, to undertake all the affairs and the administration of the company and take under his control all the property of the company.
Upon the appointment of the liquidator, the powers of the directors are ceased, as these are vested in the liquidator, and the company cannot continue its activities except those necessary for its smooth liquidation. It is worth clarifying, that the directors still have the responsibility to cooperate with the liquidator by providing information and documentation in relation to the affairs of the Company including the financial books.
The time needed for the liquidation of a company in Cyprus, in case of a voluntary liquidation, may take from six months to one year, while in case of a compulsory liquidation the completion will take from one to two years or even more. The time frame may vary from case to case.
VOLUNTARY LIQUIDATION
- Voluntary liquidation by members
According to Cyprus Company Law, a company can be wound up voluntarily by its members providedthat the company is solvent, i.e. is in a position to pay all its debts and has no liabilities.
In this regard, the directors must prepare a statement/declaration of solvency, including a statement of assets and liabilities, and the majority of the directors should swear an affidavit before the registrar of the district court stating that the company can pay off all its debts within 12 months from the start of the liquidation.
Within five weeks from the date of the aforesaid affidavit, the shareholders/members of the company should pass a special resolution, by which they will approve the winding up of the company and they will appoint the liquidator (a Licensed Insolvency Practitioner).
The declaration of solvency, the special resolution and relevant forms must be submitted to the Registrar of Companies (Insolvency Department), which will arrange to publish the special resolution for the liquidation of the company to the Official Gazette.
It goes without saying that the company must also settle all its tax obligations and gets a tax clearance certificate from the tax authorities to this respect.
Once the winding up and the affairs of the company are completed, the liquidator will call a general meeting, present the final accounts, and liquidate the company.
After the passing of three months from the date of filing of the final accounts with the Registrar of Companies, the company is considered to have been dissolved and the Registrar issues the relevant certificate of dissolution. Registrar of Companies, the company is considered to have been dissolved and the Registrar issues the relevant certificate of dissolution.
- Creditors Voluntary Liquidation
When a company is insolvent, i.e. unable to pay its debts, may opt for the procedure of the voluntary liquidation by its creditors. The aim of this procedure is the termination of company’s activities, the realisation of the company’s assets for the purpose of distributing the proceeds to the creditors and the company’s dissolution.
Following the preparation of the statement of financial position of the company, by the directors, including the list of company’s creditors and their claims, the company shall convene meetings for the shareholders and the creditors, in order for them to resolve on the winding up of the company and to appoint the liquidator. The liquidator will deal with the claims of the creditors and will liquidate and dissolve the company after the affairs of the company have been wound up fully. The notices for the creditors’ meeting shall be advertised in the Official Gazette and two local newspapers.
Once the affairs of the company have been wound up fully, the liquidator shall send notices for convening a company’s final general meeting and a creditors’ final meeting for the purpose of submitting the final accounts, including the report stating how the affairs have been settled and the assets have been liquidated. The time, place and object of each final meeting shall be also advertised in the Official Gazette and published one month at least before the meeting.
Within one week after the date of the final meetings, the liquidator shall send to the Registrar of Companies a copy of the final accounts, and on the expiration of three months from the registration of the final accounts by the Registrar of Companies the company shall be deemed dissolved.
COMPULSORY LIQUIDATION
Compulsory liquidation is the most formal insolvency procedure, and it generally requires more than a year, or two, to be completed, depending mainly on the available assets of the company and the number of creditors.
Compulsory liquidation is commenced by an application to the court, on the basis of a petition for an order for the winding up of the Company. The application may be filed
either by the company itself, a creditor, a contributory or the Official Receiver (i.e. the Insolvency Department). The most common ground for filing a petition for compulsory liquidation is the company’s inability to pay its debts, although there are a few other grounds that it can be wound up by a court order.
Usually, the liquidator is appointed by the Court and the liquidator, undertakes to conduct the liquidation procedure based on a Statement of Affairs prepared and provided by the company’s directors. The Statement of Affairs includes details of company’s assets and liabilities, creditors’ details, securities, and other relevant information.
The liquidator will basically do the same actions as in a voluntary liquidation, i.e. he will ascertain and realise the assets of the company in order to pay the fees and expenses of the liquidation procedure, the secured creditors, preferential debts, employees, and unsecured creditors provided that their claims have been admitted and checked.
Court based compulsory liquidations are not as flexible as voluntary liquidations, as the law imposes greater control, through the requirement that the liquidator must prepare and submit to the Registrar of Companies, the accounts of the procedure, including statements of receipts and payments, on a six-monthly basis.
As soon as the affairs of the company have been entirely wound up, the court, after an application by the liquidator, shall order the dissolution of the company.
ROLE OF THE LIQUIDATOR
It is evident that the liquidator bears a heavy responsibility, once appointed, as he is required to liquidate the company with diligence. We hereby list below the duties of a liquidator in Cyprus:
- Takes control of the business of the company;
- Asses the financial and legal status of the company following the review of financial statements and directors’ report;
- Brings to an end any remaining contracts or legal disputes and ceases the activities of the company;
- Requests valuations for company assets to maximise returns for creditors;
- Inspect the affairs of the company and ascertain whether there has been any dishonest preference, breach of trust, misfeasance by its officers or whether a property has been sold at an undervalue.
- Takes possession and protect the assets of the company;
- Identifies the creditors and their claims;
- Keeps creditors informed and involved in the decision-making process where appropriate.
- Distributes surplus assets between shareholders and contributories;
- Liquidates the assets of the company so as to pay claims, debts and liabilities (including taxes)
- Pays the creditors by order of priority in accordance with the provisions of Cyprus Companies Law. It is noted that all expenses incurred during the liquidation procedure, including liquidator’s fees, shall be paid out of the assets of the company in priority to all other claims.
- Arranges to apply to the court, in all types of winding up proceedings, for the determination of questions and issues arising during the liquidation process when the guidance of the court is necessary.
- Prepares accounts in relation to the way the affairs of the company have been settled and the way the assets have been distributed.
- Keeps the authorities informed.
The information provided in this note is for general informational purposes only and should not be used as professional or formal legal advice.
If you are looking to appoint a liquidator for the liquidation of a company, please note that MARILENA SHAMBARTA is a Licensed Insolvency Practitioner. She is qualified and licensed to offer liquidation services and act as a liquidator.
Our law firm may guide you on all the necessary steps for the liquidation of a company, conduct the relevant procedure from a to z, and apply to court for any required/essential court procedures, including protection of company assets.
12 March, 2024
MARILENA SHAMBARTA,
Advocate & Legal Consultant, Insolvency Practitioner, Mediator