1. Statutory Basis
- Article 202 Cap.113:
- Allows a shareholder to apply to Court on the ground that the company's affairs are being conducted in a manner oppressive to some of the members (including the applicant).
- The Court may grant relief if it considers that oppression is established.
- Remedies include: winding up, regulation of affairs, injunctions, or requiring purchase of shares.
- Article 211(f) Cap.113:
- Allows winding up by the Court when “it is just and equitable that the company should be wound up”.
- This is an equitable ground that goes beyond strict legal rights under the Articles, capturing situations where mutual trust and confidence has broken down.
2. What Constitutes Oppression
- Definition: Conduct by those in control that is burdensome, harsh, wrongful, or lacking in probity toward minority shareholders.
- Threshold: Must go beyond mere mismanagement or negligence; requires unfair prejudice or bad faith.
- Examples:
- Exclusion of minority from participation where a legitimate expectation exists (e.g. quasi-partnership companies).
- Misappropriation or diversion of company business for personal gain.
- Refusal to declare dividends coupled with siphoning profits.
- Denial of information or failure to hold meetings/accounts.
3. What Constitutes Deadlock
- Deadlock = paralysis of decision-making, making it impossible to manage the company.
- Occurs when:
- There is 50:50 ownership/control and neither side can prevail.
- Persistent refusal of directors to co-operate (e.g. refusal to sign cheques, hold board meetings).
- Breakdown of mutual trust in quasi-partnership style companies.
- Deadlock itself can justify winding up under 211(f) just & equitable grounds.
4. The “Just and Equitable” Test
- Principles:
- Company law rights are subject to equitable considerations especially in family or small private/quasi-partnership companies.
- If mutual confidence and participation are destroyed, the Court may step in.
- Exclusion of a member from management contrary to legitimate expectations can ground relief.
- Cypriot courts consistently adopt these principles.
5. Discretion of the Court
- Winding up is considered a remedy of last resort.
- The Court balances:
- The seriousness of oppression/deadlock.
- Whether other remedies (injunction, buy-out order, regulation of affairs) would suffice.
- The need to protect both the minority and the company as a going concern.
6. Procedural Aspects
- Who may apply: Shareholder(s) of the company
- Procedure: Petition (application) to District Court under Articles 202 & 211.
- Evidence: Must show specific acts of oppression/deadlock, not vague allegations.
- Clean Hands: Applicant must not be guilty of serious misconduct contributing to the breakdown.
7. Remedies Available
- Primary: Winding up the company by Court order (Articles 202, 211).
- Alternatives (esp. under Art.202):
- Regulation of affairs by Court order.
- Restraining oppressive conduct.
- Ordering majority to buy out minority at fair value.
- In practice, buy-out at fair value is often preferred if winding up would destroy value.
Summary Rule:
A company in Cyprus may be wound up where those in control engage in oppressive conduct toward the minority or where there is deadlock and breakdown of mutual trust in a quasi-partnership context. The Court exercises equitable discretion, and winding up is a last resort where no other remedy is adequate.
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.
