Company liquidation in Cyprus
Below we'll briefly provide information regarding the liquidation processes in Cyprus, a few statistics of company insolvencies during the past years and the new expected bankruptcy legislation.
Liquidation is the term used when a company decides to dissolve and materialize all its assets as it cannot pay its debts.
In such cases the company is considered insolvent and the materialization of its assets is unavoidable in order to arrange all financial obligations. Unfortunately, hundreds of companies have the past 2 years resumed to company liquidation procedures.
Types of Company liquidation in Cyprus
Cyprus company liquidation can either be processed by the company itself or it can be enforced by the creditors. Different requirements apply for each case.
Voluntary Liquidation by Members
For a voluntary liquidation to take affect one of below conditions must apply:
- when the period of the company’s duration expires, (set by the articles of association of a company); or
- when a certain event occurs, the occurrence of which was set in the articles of association to mean the dissolution of the company;
- when a company votes by special resolution its voluntary liquidation;
- when a company votes by extraordinary resolution that, due to its obligations, it may not continue operating and liquidation is advisable.
One solvent shareholder of a company is enough to decide to dissolve it voluntarily.
The directors must prepare the following documents and present them during the meeting:
- Audited financial statements which are relevant to the liquidation date;
- A solvency statement confirming that the company can pay all its debts;
- A written resolution approving the solvency statement.
The directors must then appoint a liquidator to check and collect the company’s assets to be realized and paid to the creditors.
Remaining funds, if any, are returned to the shareholders. In the final general meeting, the liquidator submits to the company members the final liquidation accounts and explains their conduct. The accounts must also be submitted to the Registrar of Companies.
Article 262(1) provides for the notice of resolution for voluntary liquidation after a company has approved it. The company must deliver a copy of such notice to the Registrar of Companies within 15 days from its approval. The Registrar of Companies proceeds to its registration and arranges for its publication in the Official Gazette of the Republic. The voluntary liquidation date of commencement is considered to be the date of approval of the relevant resolution.
The company is dissolved within 3 months from the filing of the returns.
Voluntary Liquidation by Creditors
When a company is considered insolvent, it can only proceed with a voluntary liquidation by its creditors.
Both the members and the creditors must hold a meeting to appoint one or more liquidators. The creditors may also appoint an inspection committee if there is a reason to. The liquidators shall arrange for the liquidation of the company’s affairs, and then send notices for the final meetings.
The company directors must prepare the following documents before the meeting:
- A statement of their position on the company’s affairs;
- A list of the creditors and an estimated amount of their claims;
Furthermore, they must send a notice simultaneously to both the creditors and the shareholders. Such notices of the meeting must also be published in the Official Gazette and at least 2 local newspapers.
The Board of Directors must select the most suitable mechanism for the dissolution of a company, depending on the circumstances. The Companies Law, Cap. 113 regulates the procedures and requirements for the liquidation of Cyprus companies. Finally, the liquidators submit the Final Liquidation Account which will lead to the dissolution of the company.
Company liquidation statistics the past year
As to the information the Insolvency Service has gathered for the year 2020-2021, 2,687 businesses were liquidated in Cyprus between March 2020 and May 2021 which is the highest numeral since 2010. The previous "high score" was in 2017, when 2,497 companies closed its operations in Cyprus due to the economic crisis caused in 2013.
Below we can see how many companies closed during Jan-Sept 2021
- January 2021- 168 companies closed,
- February 2021 - 207 companies closed,
- March 2021- 180 companies closed,
- May 2021- 139 companies closed,
- June 2021- 204 companies closed,
- July 2021- 158 companies closed,
- August 2021- 108 companies closed,
- September 2021- 164 companies closed,
Unfortunately, numerous companies continue to close in Cyprus due to the consequences of the coronavirus pandemic, the restrictive measures and quarantine. The government has proceeded though with various measures to boost the economy such as financial support plans, investment schemes etc. so let’s hope that we are in the breaking point phase.
A new bankruptcy law is also expected to be introduced in Cyprus in the summer of 2022, which will help prevent the liquidation of many companies. The objective of the European directive, which will line up with national legislation, is to guarantee that a sustainable business can wholly get rid of its debts after a reasonable period of time.
The legislation Directive 2019/1023 of the European Parliament aims to create a preventive restructuring framework that can effectively prevent the liquidation of companies even before they become insolvent. At the same time procedures are being established to protect transactions related to restructuring, a regulatory framework has also been defined to facilitate the exit from debts of an authentic category of debtors and a merging of corporate and private loans is foreseen.
