A company is a legal person; it has separate legal personality distinct from its board and members meaning that it can continue perpetually for succession purposes.
Often, the question arises how a company can be ‘killed off’. In common law jurisdictions, there are two main methods: strike – off and liquidation.
The Cyprus Companies Law, Cap. 113 (the “Law”) as amended from time to time, provides for the procedure of each of these methods. Below is a brief outline of each methods and their main differences.
Brief outline of each method
(1) Strike – off: section 327 of the Law
By this method, it is simply declared by the company that it has ceased carrying on its operations and business.
In order to proceed with this method, the company must first:
- Close all its bank accounts;
- Have a clean balance sheet (i.e. no liabilities, receivables or other obligations)
- Have up to date audited financial statements;
- Have complied with all its statutory tax obligations.
- Director/s pass a resolution to the effect that the company has no business activities.
- Resolution is filed with the Cypriot Registrar of Companies.
- Registrar of Companies publishes the strike off from the company from the Registry after the lapse of a three-month statutory period.
It is important to note that with this method, the company does not ‘die’. The company is merely stricken off the Registry by having its name removed.
Any creditor or interested party may apply to have the company reinstated within a period of twenty years by applying to the court in the district where the company’s registered office is situated, thus reinstatement under this method is by court order.
A recent amendment to the Law made in January 2019, reduced this twenty-year period to two years but this has yet to be put into effect.
This method usually takes approximately six months to complete.
(2) Liquidation: sections 268 – 274 of the Law
There are two types of liquidation: voluntary and involuntary.
In this article we will only mention the voluntary liquidation by members (“MVL”).
Put simply, MVL is where the company’s members decide to close the company, either because it is no longer needed by the members or it has served the purposes for which it was established.
A prerequisite for this method is that the company must be solvent. Solvency means that the company must be able to pay all its creditors and have no liabilities. Best practice would be for the company’s assets to exceed its liabilities.
- Resolution by shareholders after directors’ resolution to propose liquidation;
- Audited financial statements up to date of appointment of liquidator. Assets should exceed liabilities
- Sworn declaration of solvency in form of an affidavit by directors
- Publication of appointment of liquidator in the government gazette and two local newspapers
- Obtainment of tax clearance certificate from the Department of Taxation
- Once the above have been done, then a one month notice for the final meeting of the company is published in the government gazette
- On the lapse of this one-month notice, final minutes and liquidator’s statement of account is filed with the Registrar of Companies.
- Company is deemed dissolved after the lapse of a three-month statutory period.
Any creditor or interested party may apply to have the company reinstated within a period of two years by applying to the court in the district where the company’s registered office is situated, thus reinstatement under this method is by court order.
This method usually takes 12– 18 months to complete, depending on the company’s circumstances and obtainment of tax clearance.
HOW WE CAN ASSIST
- Liaison with Department of Taxation for obtainment of tax clearance certificate
- Updating accounting records
- Statutory filings with Registrar of Companies
- Corporate administration
- Appointment of in – house licenced insolvency practitioner to undertake the MVL procedure
For more information please contact Andersen in Cyprus