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Cyprus Insolvency Law
Information for Cyprus Expats on Cyprus Bankruptcy & Insolvency Laws
Insolvency refers to the inability of a company to repay debts which it has incurred. Bankruptcy has the same connotations in Cyprus law as far as individuals are concerned. Insolvency in Cyprus is subject to the provisions of the Companies Law, Chapter 113 of the Cyprus Laws sections 203 through to 344. Insolvencies fall into two categories:
• Compulsory Liquidation by the court;
• Voluntary Liquidation by the Company or its Creditors.
A compulsory liquidation results from a compulsory winding up order obtained pursuant to a creditor filing an insolvency petition with the competent court (which according to section 209 is the court in the district in which the company to be liquidated has its registered office). A compulsory liquidation is conducted by an official receiver or an insolvency practitioner.
A voluntary liquidation, meanwhile, results from a resolution passed by members or directors, subject to the approval of creditors, to wind up a company.
Compulsory Liquidation
A company, in accordance with section 211 may be liquidated by the court if:
(i) The members of the company resolve by special resolution that the company be wound up by the court;
(ii) There is a default in delivering the statutory report to the Registrar of Companies or in holding the statutory meeting;
(iii) The company does not commence business within a year from the date of its incorporation or suspends its business for one whole year;
(iv) The number of members of the company is reduced, in the case of a public company, below seven;
(v) The company is unable to pay its debts;
(vi) The court decides that it is just and equitable for the company to be wound up.
After the liquidation has commenced any legal action against the company is stayed except with the permission of the court. Likewise no new legal proceedings may be initiated except with the permission of the court (section 220). The court appoints the liquidator of the company in accordance with section 226.
According to section 233, the liquidator in a winding up by the court has the power, (with the sanction of the court):
(i) to bring or defend any action or other legal proceeding in the name and on behalf of the company;
(ii) to carry on the business of the company so far as may be necessary for the beneficial winding up thereof;
(iii) to appoint an advocate to assist him in the performance of his duties;
(iv) to pay any classes of creditors in full;
(v) to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages against the company, or whereby the company may be rendered liable;
(vi) to compromise all calls and liabilities to calls, debts and liabilities capable of resulting in debts, and all claims, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect thereof.
(vii) to sell the real and personal property and things in action of the company by public auction or private contract, with power to transfer the whole thereof to any person or company or to sell the same in parcels;
(viii) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose to use, when necessary, the company’s seal;
(ix) to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and rateably with the other separate creditors;
(x) to draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business;
(xi) to raise on the security of the assets of the company any money requisite;
(xii) to take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases the money due shall, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, be deemed to be due to the liquidator himself;
(xiii) to appoint an agent to do any business which the liquidator is unable to do himself;
(xiv) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.
When the affairs of a company have been completely wound up, the court, upon application of the liquidator, shall make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly (section 260).
Voluntary Liquidation
According to section 261, a company may be wound up voluntarily
(i) when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily;
(ii) if the company resolves by special resolution that the company be wound up voluntarily; (in such a case the company must publish such resolution in the Official Gazette of the Republic of Cyprus within 14 days; note however that the insolvency procedure begins on the date of approval of the resolution).
(iii) if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that it is advisable to wind up.
There are two kinds of voluntary liquidation: (i) members' voluntary liquidation which means that the directors have made a statutory declaration of solvency;
(ii) creditors' voluntary liquidation which means that the directors have not made such a declaration.
A statutory declaration of solvency is made by affidavit of the directors of the company or, in the case of a company having more than two directors, the majority of the directors, to the effect that they have made a full inquiry into the affairs of the company, and that, having so done, they have formed the opinion that the company will be able to pay its debts in full within such period not exceeding twelve months from the commencement of the winding up as may be specified in the declaration. Such a declaration must be made within the five weeks immediately preceding the date of the passing of the resolution for winding up the company and be delivered to the registrar of companies for registration before that date. It must further incorporate a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration.
The company in general meeting appoints one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company, and fixes their remuneration. On the appointment of a liquidator all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions the continuance thereof.
From the commencement of the winding up, the company must cease to carry on its business, except so far as may be required for the beneficial winding up thereof. Any change in the membership of the company or transfer of the company’s shares without the sanction of the liquidator is invalid. The liquidator under a voluntary liquidation has the same powers as the liquidator under a compulsory liquidation.
As soon as the affairs of the company are fully completed, the liquidator draws up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and calls a general meeting of the company and a meeting of the creditors for the purpose of laying the account before the meetings and giving any explanation requested. Such a meeting must be published in the Official Gazette of the Republic of Cyprus specifying the time, place and object thereof, and published one month at least before the meeting.
Within one week after the date of the meeting the liquidator files the account with the registrar of companies. The registrar on receiving the account registers same and three months after such registration the company shall be deemed to be dissolved.
Order of Priority of Claims
Sections 298 to 333 are concerned with the identification of claims and their ranking for insolvency purposes whether in the case of a compulsory or a voluntary liquidation.
Generally speaking the order of priority of debts is as follows:
(a) the costs of winding up including disbursements, fees of the liquidator(s) and of persons appointed by the liquidator(s) such as auditors;
(b) the preferential debts, which are: (i) all local taxes due within twelve months before the commencement of the insolvency; (ii) all Government taxes and duties due within twelve months before the commencement of the insolvency and, in the case of assessed taxes, not exceeding in the whole one year’s assessment; (iii) due wages of employees and any amount from the wages of employees withheld by the employer for the payment of liabilities of the employee or otherwise, which the employer has not paid; and (iv) any other amount or benefit of employees which derives from a contract or employment relation including any amount due to a recognized union deriving from the industrial relation of employer-employee or otherwise which the employer has not paid.
(c) the secured creditors, i.e. those who have a registered interest or security such as a mortgage or a pledge;
(d) the unsecured ordinary creditors;
(e) the deferred debts, such as dividends declared but unpaid.
Directors’ Liability
A director may be held liable upon the liquidation of a company and the main types of liability that arise concern fraudulent acts, including fraudulent trading, falsification of books or keeping insufficient accounting records. During the winding up of a company if it appears either to the Court (where the liquidation is by or under the supervision of the Court) or the Liquidator (in the case of voluntary winding up) that any past of present officer or member of the company has been guilty of any offence in relation to company for which he is criminally liable the Court or the Liquidator may report the matter to the Attorney-General who may at his or her discretion commence proceedings against such director or member.
Strike off
A Cyprus company may apply to the Registrar to be struck off the register if the company is not trading, has no assets or liabilities and no creditors (or the creditors have been notified and do not object to the strike-off) , and an affidavit to this effect is sworn before the Cyprus courts by the directors. Any shareholder, creditor or liquidator can apply to restore the company to the register for up to 20 years after its strike-off. The reasons a party may seek restoration vary and include existence of creditors to whom notice was not given correctly or sufficiently, the possibility that the company might have been trading during the strike-off, or some fraud, misfeasance or other unjust action was committed by the company or the directors before or during the strike-off process.
Timeframe
The timeframe of a liquidation may vary drastically depending on the time it takes to wind up the affairs of a company, the existence of creditors or litigation procedures etc. On average, a compulsory liquidation may take a year in order to be completed whereas a voluntary liquidation will usually take approximately six months. A strike-off will usually take four months (one month notification and three months publication in the Official Gazette) but as noted above, its effects are not that the company is liquidated as it may be restored by an interested party within twenty years of its strike-off.
• Compulsory Liquidation by the court;
• Voluntary Liquidation by the Company or its Creditors.
A compulsory liquidation results from a compulsory winding up order obtained pursuant to a creditor filing an insolvency petition with the competent court (which according to section 209 is the court in the district in which the company to be liquidated has its registered office). A compulsory liquidation is conducted by an official receiver or an insolvency practitioner.
A voluntary liquidation, meanwhile, results from a resolution passed by members or directors, subject to the approval of creditors, to wind up a company.
Compulsory Liquidation
A company, in accordance with section 211 may be liquidated by the court if:
(i) The members of the company resolve by special resolution that the company be wound up by the court;
(ii) There is a default in delivering the statutory report to the Registrar of Companies or in holding the statutory meeting;
(iii) The company does not commence business within a year from the date of its incorporation or suspends its business for one whole year;
(iv) The number of members of the company is reduced, in the case of a public company, below seven;
(v) The company is unable to pay its debts;
(vi) The court decides that it is just and equitable for the company to be wound up.
After the liquidation has commenced any legal action against the company is stayed except with the permission of the court. Likewise no new legal proceedings may be initiated except with the permission of the court (section 220). The court appoints the liquidator of the company in accordance with section 226.
According to section 233, the liquidator in a winding up by the court has the power, (with the sanction of the court):
(i) to bring or defend any action or other legal proceeding in the name and on behalf of the company;
(ii) to carry on the business of the company so far as may be necessary for the beneficial winding up thereof;
(iii) to appoint an advocate to assist him in the performance of his duties;
(iv) to pay any classes of creditors in full;
(v) to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages against the company, or whereby the company may be rendered liable;
(vi) to compromise all calls and liabilities to calls, debts and liabilities capable of resulting in debts, and all claims, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect thereof.
(vii) to sell the real and personal property and things in action of the company by public auction or private contract, with power to transfer the whole thereof to any person or company or to sell the same in parcels;
(viii) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose to use, when necessary, the company’s seal;
(ix) to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and rateably with the other separate creditors;
(x) to draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business;
(xi) to raise on the security of the assets of the company any money requisite;
(xii) to take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases the money due shall, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, be deemed to be due to the liquidator himself;
(xiii) to appoint an agent to do any business which the liquidator is unable to do himself;
(xiv) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.
When the affairs of a company have been completely wound up, the court, upon application of the liquidator, shall make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly (section 260).
Voluntary Liquidation
According to section 261, a company may be wound up voluntarily
(i) when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily;
(ii) if the company resolves by special resolution that the company be wound up voluntarily; (in such a case the company must publish such resolution in the Official Gazette of the Republic of Cyprus within 14 days; note however that the insolvency procedure begins on the date of approval of the resolution).
(iii) if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that it is advisable to wind up.
There are two kinds of voluntary liquidation: (i) members' voluntary liquidation which means that the directors have made a statutory declaration of solvency;
(ii) creditors' voluntary liquidation which means that the directors have not made such a declaration.
A statutory declaration of solvency is made by affidavit of the directors of the company or, in the case of a company having more than two directors, the majority of the directors, to the effect that they have made a full inquiry into the affairs of the company, and that, having so done, they have formed the opinion that the company will be able to pay its debts in full within such period not exceeding twelve months from the commencement of the winding up as may be specified in the declaration. Such a declaration must be made within the five weeks immediately preceding the date of the passing of the resolution for winding up the company and be delivered to the registrar of companies for registration before that date. It must further incorporate a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration.
The company in general meeting appoints one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company, and fixes their remuneration. On the appointment of a liquidator all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions the continuance thereof.
From the commencement of the winding up, the company must cease to carry on its business, except so far as may be required for the beneficial winding up thereof. Any change in the membership of the company or transfer of the company’s shares without the sanction of the liquidator is invalid. The liquidator under a voluntary liquidation has the same powers as the liquidator under a compulsory liquidation.
As soon as the affairs of the company are fully completed, the liquidator draws up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and calls a general meeting of the company and a meeting of the creditors for the purpose of laying the account before the meetings and giving any explanation requested. Such a meeting must be published in the Official Gazette of the Republic of Cyprus specifying the time, place and object thereof, and published one month at least before the meeting.
Within one week after the date of the meeting the liquidator files the account with the registrar of companies. The registrar on receiving the account registers same and three months after such registration the company shall be deemed to be dissolved.
Order of Priority of Claims
Sections 298 to 333 are concerned with the identification of claims and their ranking for insolvency purposes whether in the case of a compulsory or a voluntary liquidation.
Generally speaking the order of priority of debts is as follows:
(a) the costs of winding up including disbursements, fees of the liquidator(s) and of persons appointed by the liquidator(s) such as auditors;
(b) the preferential debts, which are: (i) all local taxes due within twelve months before the commencement of the insolvency; (ii) all Government taxes and duties due within twelve months before the commencement of the insolvency and, in the case of assessed taxes, not exceeding in the whole one year’s assessment; (iii) due wages of employees and any amount from the wages of employees withheld by the employer for the payment of liabilities of the employee or otherwise, which the employer has not paid; and (iv) any other amount or benefit of employees which derives from a contract or employment relation including any amount due to a recognized union deriving from the industrial relation of employer-employee or otherwise which the employer has not paid.
(c) the secured creditors, i.e. those who have a registered interest or security such as a mortgage or a pledge;
(d) the unsecured ordinary creditors;
(e) the deferred debts, such as dividends declared but unpaid.
Directors’ Liability
A director may be held liable upon the liquidation of a company and the main types of liability that arise concern fraudulent acts, including fraudulent trading, falsification of books or keeping insufficient accounting records. During the winding up of a company if it appears either to the Court (where the liquidation is by or under the supervision of the Court) or the Liquidator (in the case of voluntary winding up) that any past of present officer or member of the company has been guilty of any offence in relation to company for which he is criminally liable the Court or the Liquidator may report the matter to the Attorney-General who may at his or her discretion commence proceedings against such director or member.
Strike off
A Cyprus company may apply to the Registrar to be struck off the register if the company is not trading, has no assets or liabilities and no creditors (or the creditors have been notified and do not object to the strike-off) , and an affidavit to this effect is sworn before the Cyprus courts by the directors. Any shareholder, creditor or liquidator can apply to restore the company to the register for up to 20 years after its strike-off. The reasons a party may seek restoration vary and include existence of creditors to whom notice was not given correctly or sufficiently, the possibility that the company might have been trading during the strike-off, or some fraud, misfeasance or other unjust action was committed by the company or the directors before or during the strike-off process.
Timeframe
The timeframe of a liquidation may vary drastically depending on the time it takes to wind up the affairs of a company, the existence of creditors or litigation procedures etc. On average, a compulsory liquidation may take a year in order to be completed whereas a voluntary liquidation will usually take approximately six months. A strike-off will usually take four months (one month notification and three months publication in the Official Gazette) but as noted above, its effects are not that the company is liquidated as it may be restored by an interested party within twenty years of its strike-off.
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