Company liquidation is a legal procedure triggered when a company faces difficulty repaying its debts. It offers a fresh start to those burdened by financial obligations. Usually, it commences with the debtor submitting a request, although creditors can also instigate it. Throughout this procedure, the debtor’s belongings are evaluated, and certain assets may be utilized to settle a portion of the outstanding debts.
Numerous companies face bankruptcy and liquidation due to various reasons, but the most prevalent causes include inadequate management, ineffective marketing strategies, and unsound financial practices. This indicates a decline in the company’s trustworthiness and ability to settle debt with creditors. Meanwhile, multiple creditors can pursue legal action against the company even before it enters bankruptcy. Once the court issues an order for bankruptcy and liquidation, all ongoing legal actions are typically halted unless the court grants specific permission for any actions to proceed at the creditor’s request.
Cyprus Company Law
The Cyprus Company Law outlines the fundamental rules and directions for the dissolution of a company. As per Article 218 in the Company Law Cap 113, when a company undergoes liquidation through the Court, the process officially commences upon the submission of the liquidation application. Moreover, a duplicate of the Court Order must be promptly delivered to the registrar of companies within a maximum of three (3) working days from its issuance—either by the company itself or as directed. Subsequently, the registrar proceeds to register the order and publishes it on the official website of the Department of the Registrar of Companies and Official Receiver.
If the petitioner seeking liquidation isn’t the official receiver, they are required to provide both the application and the liquidation order to the official receiver. Additionally, if necessary, they must also deliver these documents to the registrar of companies, the Director of the Department of Cadastre and Land Surveying, the Director of the Department of Merchant Shipping, the General Manager of the Cyprus Stock Exchange, and the Director of the Road Transport Department.
The Cyprus Company Law safeguards the assets of a company undergoing bankruptcy and liquidation to ensure the protection of creditors’ claims against the company. According to Article 220 in the Cyprus Company Law Cap 113, when a winding-up order is issued, or a provisional liquidator is appointed, no legal action can proceed against the company without the Court’s permission and adherence to its specified conditions. Consequently, all creditor lawsuits against the company will be put on hold unless the Court grants permission to pursue or initiate new legal actions against the company undergoing liquidation.
Permission to Continue the Lawsuit against a Liquidated Company.
As previously stated, the Company outlines a precise process for obtaining authorization to proceed with or initiate a lawsuit against the liquidated company.
The conditions the Court will seek for approval of such an application and the issuance of the Order to continue the lawsuit are as follows:
- The lawsuit must have been initiated prior to the liquidation order.
- The defendant must currently be undergoing liquidation.
- Strong grounds and prospects to substantiate your case against the defendant must be evident.
Furthermore, the Court holds complete discretion in determining the terms and conditions of the permission and whether the order will impact other creditors’ rights. Referring to the case law of Bowkett and Article 140 of the Companies Act 1908 of England, which corresponds to Article 215 of the Cyprus Company Law, the principle is that “The Court’s general approach when dealing with a petition that might lead to a winding-up order or a scheme is to ensure that no creditor gains an advantage over others in the same category. When a request is made to halt proceedings under section 140, there must be exceptional circumstances to justify the Court in denying the request. Allowing the plaintiff’s case to proceed would mean they receive full payment while staying. It would place them equitably among other creditors in their category. I do not discern any extraordinary circumstances in this particular instance. Allowing the plaintiff to continue would essentially permit certain creditors, during the period between the petition’s submission and the arrangement’s implementation, to benefit disproportionately from the company’s assets over others in a less favorable position. The Court retains discretion on whether to halt a plaintiff’s action. Yet, it is contrary to the Court’s policy to exercise this discretion by permitting the plaintiff to proceed unless highly unusual circumstances exist.
This process might necessitate authorization from a foreign Court to proceed with legal proceedings against a company undergoing liquidation. Numerous companies operate internationally and might find themselves either as plaintiffs or defendants in a foreign Court. The overarching principle safeguards creditors’ rights and enables plaintiffs to enforce decisions against the company in liquidation. The application and the requirements for obtaining permission from such a foreign court are highly detailed, requiring strict adherence to legal requirements and regulations to ensure compliance.
The above article is purely informative in nature and in no way constitutes legal advice or opinion regarding the Termination of employment. Our law firm provides services and specialized advice on Litigation Company Law and can represent clients in all Districts of the Republic of Cyprus. You can reach us by calling +357 24 727313 or email [email protected].