The global economic crisis in conjunction with the enhanced practices imposed by the international business and other standards has forced and continues to force many companies to enter liquidation proceedings for the purposes of their dissolution. Retrieving from the Cyprus Companies Law, Cap. 113, there are various ways through which a private company limited by shares may be dissolved. Apart from restructuring any arrangements and mergers that may also lead to the dissolution of a company, the main mechanisms aiming directly at the dissolution of the company are the voluntary liquidation (by the company's members or creditors, under the supervision of the Court or not), the compulsory liquidation by virtue of an order of the Court and the strike-off available in simplest cases. In light of the aforesaid, it is of utmost importance for the Board of Directors of a company to consider the most appropriate, in the circumstances, mechanism for the dissolution of each such company.
(a) Voluntary Liquidation (by the company's members or creditors)
The procedure of the voluntary liquidation varies depending on whether proceedings have been initiated by the company's members or creditors.
To be more precise, the simplest way of voluntary liquidation is the one initiated by the members of the company, a procedure that is available provided that the company is solvent in the sense that it is able to pay all its debts, within one year from the commencement of the liquidation procedure; such solvency is confirmed by the company's Board of Directors through the execution of an affidavit to this end. Following the execution of the Solvency Declaration, the company's members must hold an Extraordinary General Meeting, in the course of which the said Solvency Declaration is taken into consideration for the purpose of deciding upon its entering into liquidation proceedings and, if so, upon the appointment of one or more liquidator. In the course of the liquidation, the liquidator(s) shall arrange for the liquidation of the company's affairs, following which the Final Liquidation Account shall be drawn and the Final General Meeting must be convened leading to the company's dissolution.
Instead, in case of an insolvent company, whose liabilities exceed its assets, it is only possible to proceed with the company's voluntary liquidation by its creditors, in which case both the members and the creditors shall hold a meeting for the purpose of deciding upon the appointment of one or more liquidators while in case the Creditors deem so appropriate, they may appoint an inspection committee. In the course of the liquidation, the liquidator(s) shall arrange for the liquidation of the company's affairs, following which the liquidator(s) shall send notices convening the final meetings. Upon completion of the members / creditors of the Company, the liquidator(s) shall arrange for the submission of the Final Liquidation Account, which will lead to the company's dissolution.
In any case, there is always the possibility for a creditor, contributor or other interested party, to apply to the Court in order for such voluntary liquidations to be pursued under the supervision of the Court.
(b) Compulsory Liquidation (by an Order of the Court)
In contrast to the voluntary liquidation proceedings, which are 'internally' initiated, a compulsory liquidation is ordered by the Court by virtue of a Court Order issued in the course of an Application filed to that end by the company, a creditor, a contributor or any other interested party, among others, in case the company has by special resolution resolved that it shall be wound up by the Court, in case there default in pursuing any of its statutory liabilities and/or commitments or in case the company is unable to pay its debts. In such a case, the company is dissolved following the liquidation, in full, of its affairs.
(c) Strike Off the Companies' Registry
The strike-off of a company from the Companies' Registry constitutes an alternative way through which a company is dissolved, available to dormant companies and/or companies the businesses and/or operations of which have been ceased and which (companies) have no longer any assets or liabilities and do not intend to carry on any business and/or in the future. In fact, the strike off constitutes an administrative procedure, effected, among others, through the communication of a notice or series of notices from the Registrar of Companies to a company or of a letter-request from a company to the Registrar of Companies, directly leading to the strike off of the company's name from the Companies' Registry.
More specifically, such a procedure may be initiated by the Registrar of Companies in case the latter reasonably believes that a company has ceased its business and/or operations or, in the case of a company under liquidation, that either no liquidator acts on behalf of the company or the affairs of the company have been fully liquidated. In addition, the Registrar of Companies is vested with the authority to strike-off a company from the Companies Registry upon receipt of an application submitted by the respective company's Board of Directors (provided that the company in question has fulfilled all its statutory and ancillary obligations and has settled all its affairs including -with no limitation-, the closing of all its bank accounts held worldwide, its de-registration from the VAT Service and the obtaining of a Tax Clearance Certificate from the Tax Department), upon the lapse of one year as of the company's failure to settle its annual levy on time or upon the lapse of six months as of the company's breach of statutory obligation to file to the Registrar of Companies any document and/or form, including the annual return (HE 32) accompanied by the respective financial statements and/or to settle its annual levy on time.
In light of the above, the main differences between Strike-Off and Liquidation/Wind-up proceedings can be summarized as follows:
|Strike-off||Voluntary Liquidation / Wind-up|
|Easiest and cheapest method||More complex and costly method|
|Approximately 4-9 months to be completed||Approximately 12 months or more to be completed|
|No liquidator must be appointed||One or more liquidator(s) is(are) appointed|
|Usually used for dormant / inactive companies and/or companies that have cease businesses and/or operations.||Not applicable to dormant companies; the exact way of liquidation / winding up mainly depends on the (financial) status of each company.|
Lastly, it is worth-noted that a company that has been dissolved may, subject to the provision of the Companies Law, Cap. 113 and the settlement of all its affairs, applicable in each particular case, may be reinstated through a Court Application and/or the simplified process of (administrative) reinstatement, as the case may be, which (application) may be submitted by any of the interested parties (including directors, shareholders, creditors etc) entitled, by law, to file such an application.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.