Legal Aspects of Liquidation Procedures in Cyprus: Overview 2024
Liquidation, also known as winding-up, is the legal process through which a company’s assets are realized and distributed to its creditors and shareholders. The Companies Law, Cap. 113 regulates the procedures and requirements for the liquidation of Cyprus companies (the “Companies Law”).
Types of Liquidation
There are two ways a company may be liquidated in Cyprus, according to the Companies Law and the Cyprus Laws: compulsory or voluntary. The compulsory liquidation is performed by a Court’s decision, while the voluntary liquidation is performed by the company’s members or creditors. A compulsory liquidation can occur only after a petition is filled and submitted to the relevant Court.
Voluntary Liquidation
A Company may be wound up voluntarily (a) when the period fixed for its duration by the Articles expires; (b) if the company so resolves by special resolution; or (c) if the company resolves by an extraordinary resolution because it cannot, by reason of its liabilities, continue its business.
This is a more formal method and is used only if there is a need for a liquidator to be formally appointed in order to distribute certain assets, primarily for tax reasons.
Members’ Voluntary Liquidation (MVL)
- A solvent company capable of settling its debts within 12 months may opt for MVL.
- Board Resolution: Directors convene a board meeting to propose MVL, followed by a shareholders’ resolution approving the liquidation. A majority of shareholders must consent.
- Appointment of Liquidator: Shareholders appoint a licensed insolvency practitioner as the liquidator.
- Notice to the Registrar of Companies: Within 14 days of the resolution, a notice of the liquidation is submitted to the Registrar of Companies.
- Realization of Assets: The appointed liquidator takes control of the company’s assets, settles liabilities, and distributes remaining funds to shareholders according to their rights.
- Final Meeting: The liquidator calls a final meeting to present an account of the liquidation to shareholders and creditors.
Creditors’ Voluntary Liquidation (CVL)
- CVL is commenced when a company is insolvent and unable to meet its debts.
- Board Resolution: Directors propose CVL through a board resolution, followed by an extraordinary general meeting (EGM) for approval by shareholders and creditors.
- Appointment of Liquidator: Similar to MVL, creditors and shareholders appoint a licensed insolvency practitioner as the liquidator.
- Liquidator’s Role: The liquidator manages the process, realizes assets, settles liabilities, and distributes proceeds to creditors following the statutory hierarchy.
- Report to Creditors: The liquidator reports to creditors on the company’s financial position and progress in the liquidation.
- Finalization and Dissolution: After settling all claims and distributing assets, the liquidator calls final meetings with creditors and shareholders before applying for the company's dissolution.
Compulsory Liquidation
- Court Petition: Creditors, shareholders, or regulatory authorities file a petition with the court for compulsory liquidation, typically due to insolvency or failure to comply with legal obligations.
- Official Receiver or Liquidator Appointment: The court appoints either an official receiver or a licensed insolvency practitioner as the liquidator.
- Realization of Assets: The appointed liquidator takes control, realizes assets, pays off debts, and distributes remaining funds following a statutory order of priority.
- Closure and Dissolution: The liquidator concludes the process by filing a final account and applying for the company's dissolution with the Registrar of Companies.
Strike-Off Companies Register
Strike-Off the Companies’ Registry is an alternative way to dissolve a company.
It applies to dormant companies or those who have ceased to operate and have no assets, nor do they intend to pursue their business activities in the future.
The strike-off is an administrative procedure which takes effect from a notice sent by the Registrar of Companies to the company in question or vice versa. In effect, this method is used when the Registrar of Companies is satisfied that the company in question is no longer active and has no assets.
The company must fulfil all its statutory obligations and settle its affairs including, but not limited to, the following:
- close all bank accounts worldwide,
- de-register from the VAT services, and
- obtain a Tax Clearance Certificate from the Tax Department.
The registered owners of the business bank accounts must contact the bank institutions and request their closure. Similarly, they can request the de-registration of their company name from the VAT. Once the shareholders have paid off all the pending taxes, they receive a Tax Clearance Certificate from the Tax Department. A tax clearance certificate is a certificate issued by the Cyprus Tax Department following the examination of the tax forms, which confirms that all tax obligations have been submitted and settled. The issuance of the Tax Clearance Certificate takes up to four months.
The liquidation or wound-up 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.
Comparisons of dissolution processes in Cyprus
Voluntary liquidation is a more complex and costly method than compulsory liquidation. It takes about 12 months or more to complete and there is a requirement to appoint one or more liquidators.
On the other hand, the strike-off method is the easiest and cheapest method. There is no need to appoint any liquidators and takes 4-9 months to complete.
The law imposes greater control on court-based compulsory liquidations (i.e. the requirement to periodic filings), contrary to voluntary ones.
Restoration
A stroked-off company can be 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. These include submission of all pending financial statements, audited accounts, annual returns, and payment of any pending company levies. If successful, the court issues an order restoring the name of the company in the same position before its liquidation. The Registrar of Companies must receive a copy of the court order.
Conclusion
Understanding the liquidation procedure in Cyprus is crucial for stakeholders involved in winding up a company. Whether it's a voluntary or compulsory process, adhering to legal requirements and seeking professional advice from qualified practitioners ensures a smooth and compliant liquidation process in Cyprus.
This article is intended for general informational purposes only and should not be construed as legal advice or relied upon as a substitute for professional legal advice. Readers are encouraged to consult with our expert legal advisors to obtain tailored advice and guidance tailored to their specific needs and circumstances.
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