Dissolution of Companies
Where a company no longer has the funds to function or its members decide that they no longer wish it to function a process is set in motion, which brings the existence of the legal entity to an end.
This is known as “winding-up” or “liquidation”. The process is designed to ensure that before the company ceases to exist, all its outstanding obligations are met, and any surplus assets are distributed to its members.
Recent enactments require that this process is undertaken by a licensed Insolvency Practitioner or the Official Receiver.
Types of Winding Up
The Law provides for the following types of Winding Up:
- Winding Up by the Court
- Voluntary Winding Up
- Winding Up under the supervision of the Court
Winding Up by the Court
The most important reasons for winding up a company by the court are:
- If the Company is unable to pay its debts. This is the case,
- If the Company after being served with an official demand to pay an amount due in excess of € 5.000 neglects to pay such amount within the following 3 weeks
- If an execution process issued against the company as a result of a judgment or other judicial process is returned unsatisfied (wholly or partly)
- If it is proven that the value of its assets is less than its liabilities
- The Company does not commence its business within one year from its incorporation or suspends its business for a whole year.
- If the Court is of the opinion that it is just and equitable that the company should be wound up. This is usually applied in cases of oppression of the minority on in case there is a deadlock in the company.
In all the above cases a petition must be filed to the competent Court which, after taking into consideration all the circumstances of the case, may order the winding up of the company.
Voluntary Winding Up
Unlike the Winding-Up by Court a voluntary winding up is one instigated by the members of the Company for various reasons. The most common ones are
- that the company has no further prospects or
- the shareholders simply decide that they do not wish the company to continue to exist.
A members voluntary winding up is commenced by the passing of a Special Resolution (75% majority) to this effect and appointing a Liquidator.
It is imperative for the voluntary winding up is that no creditor of the company shall be adversely affected by the liquidation. The most important question therefore the directors of the company will have to consider is whether the company is solvent, i.e. it possesses sufficient assets to meet all its liabilities. To this end, the Directors must sign, under oath, a Declaration of Solvency, accompanied by a Statement of Assets and Liabilities.
As a next step the Liquidator appointed will wind up the company’s affairs, i.e. pay all its liabilities and distribute any surplus to its members. A final meeting takes place, the time and place of which is published in the Official Gazette. Final accounts are prepared and approved by the members at that meeting and these are filed with the Registrar of Companies within a week. The Company is officially dissolved after the lapse of three months from the day of registration of the final account and report.
Striking off the Register
Sect. 327 of the Law empowers the Registrar to strike off any company from the Register if the Registrar “…has reasonable ground to believe that the company is not carrying on business or is not in operation…”. The purpose of this provision is to provide the Registrar with the necessary means to cleanse the Register of defunct companies.
There is nothing in the law to prohibit the directors from writing to the Registrar informing him that the company has become defunct and has ceased to operate or trade, inviting him to make use of his statutory powers to proceed with the striking off of the company in question. This form of “Voluntary Striking Off” offers a method by which companies can be inexpensively dissolved without engaging an insolvency practitioner and the expense of a formal winding up.
The disadvantage of a Voluntary Striking Off is that the company may be restored on the Register by an application to the Court made by any person who can prove that he has a legitimate right to apply ( e.g. a creditor). Such right extinguishes after the lapse of 20 years from the date of the dissolution.
In all other cases of liquidation, the Court will not restore a company on the register unless a very strong reason is shown. In such a case, the right to apply extinguishes in two years.
Our team of professionals at Eccuracy Corporate Services, have extensive experience in international and Cyprus company incorporation and international tax planning and we can provide you with expert advice on winding up of a Cyprus company and all company incorporation services.
Feel free to contact Ms. Alexia Mitsides at email@example.com