4. Modernizing and streamlining the compulsory liquidation process in the
4.3 The UK compulsory liquidation process as a guide to modernize Cyprus
4.3.3 The effectiveness of amendments on compulsory liquidation in the light of
The effectiveness of this new package of laws should be tested based on Cypriot case law and the approach followed by all parties involved in general, including the liquidator, creditors, or any other applicant requesting a winding up order since in most
524 H.P.H Haviaras & Philippou LLC (n 75) 525 ibid
Chapter 4: Modernizing and streamlining the compulsory liquidation process in the Companies Act based on the UK model
cases the outcome of the application is dependent on the information presented before the Court.
Most cases in Cyprus relate to applications on the ground of the inability of a company to pay its debts when the company omits to pay one of its creditors once three weeks have elapsed after the written demand for payment of a sum of more than €5000 has been served to the company. The majority of these applications are accepted by the Court, however the success of these applications is mainly due to the ʻclearnessʼ of the relevant provision of the law and the easiness of proving the inability of the company.
Such cases are now easier to fulfil the requirements of the law since the amendment laws abolished the explicit requirement that the demand has to be signed by the creditor and not by his representative or any person who can sign on behalf of him.527 Before this amendment there were cases where the application was dismissed due to the fact that written demands requiring the company to pay the sum so due, were signed by the lawyer of the creditor and not by the creditor itself.528 Therefore, the new laws have made the process easier and free from procedural matters that make the process more complex. The need for such an amendment was often mentioned by the Cypriot Courts which considered the relevant provision as ʻanachronistic under the circumstances of the nature of new transactionsʼ.529
The other amendments and, specifically, the amendment related to the time taken into account while assessing inability of the company, was discussed by the Court in several cases, a reference to which will be made below, and it seems that the presentation of the overall situation of the company is the most important factor affecting the final decision of the Court.
527In regard to the company Hanworth Enterprises Ltd [2018] Limassol District Court Application no.
543/12
528In regard to K & Y Theodorou Investements & Construction Ltd [2017] Larnaca District Court
Application no. 10/2015
529Georgiou Nicolaou v. Total Properties Ltd [2011] Supreme Court of Cyprus Civil Appeal no.
124/2010; In Regard to Azovmashinvest Holding Ltd [2017] Limassol District Court Application no. 380/14
A comparative evaluation of Cypriot corporate insolvency regimes in the light of the 2015 reforms
106 Georgia Zantira – September 2018
In the case of Tricor530 the Court assessed the inability of the company to pay its debts as they become due, having taken into account the contingent and prospective liabilities of the company. In this case the applicants have provided evidence that there was an increase on the unpaid debts of the company since the date of petition submission, as well as on the legal actions raised against it. This evidence was enough in order for the Court to permit the issuance of a winding-up order. It is worth noting that the Court also referred to an excerpt from a book which was used by applicant’s lawyer during hearing process stating that ʻan admission on behalf of a company that it is unable to pay its debts is sufficient evidence of that factʼ.531 Here the applicant was acting as the secretary of the company and was therefore in a good position to prove the company’s debts.
On the other hand, in the case Nicholas Tsokkas532 the Court noted that the applicants
did not provide evidence in order to prove the insolvency of the company based on its inability to pay its debts as they become due. The only reference to the fact that the company is insolvent was considered as insufficient proof while at the same time the Court mentioned the importance of a reference, which was missing, to the overall financial position of the company taken into account the contingent and prospective liabilities of the company.533 In the end, the Court allowed the winding-up order on the legal basis of Section 211 (e) which is generally examined in the context of the general inability of the company and is not limited to cases provided in Section 212, which provides statutory presumptions in favor of the company’s inability.534
In addition to the above, the Court in the case of Betomix535 stated that the fact the applicant did not provide evidence for the activities and obligations of the company
530In regard to the company Tricor Limited (n 508)
531 Derek French, Applications to Winding Up Companies (2nd edn, Oxford University Press 2008) 447 532In regard to the company Νicholas Tsokkas Estates Agents Ltd [2016] Paphos District Court
Application no. 85/14
533 ibid
534Μ. Mouletaris Machinery Co. Ltd v. Ζenonos [2001] 1C AAC 1649
535In regard to the company Μikis Natar Sons Limited, Creditor of NPP Betomix Limited ν. In regard to
Chapter 4: Modernizing and streamlining the compulsory liquidation process in the Companies Act based on the UK model
more broadly and was limited to its own debt was crucial for the dismissal of the application.536
As regards to the new provision on the inability of the company to pay its debts when the value of the company’s assets is less than its liabilities, taking into account the contingent and prospective liabilities of the company, the case law is very poor. However there are some cases that provide indication on how the Courts are handling such applications. More specifically, in case SCM Financial Overseas537 the Court while examining an application to strike out for abuse of process, has made reference to the factors that are taken into account in order to permit the liquidation of a company, which is amongst others providing information as to the current liabilities of the company that exceed its assets of a substantial amount of money and that the company disposed assets to affiliated companies in an attempt to put assets out of the reach of creditors.538
All in all, it could be argued that the attempt of the legislator to broaden protection of creditors by adding additional criteria that work in favour of the company liquidation was successful, but in the end what is worth the most is the evidence provided to support the relevant application and how the courts will interpret and enforce the law in combination with the evidence presented to it.
4.3.4 Is there a need for more amendments in the future based on the UK