In Cyprus, there are two main methods of dissolving a company voluntarily. The easiest and cheapest method is the strike off method under Section 327 of the Companies Law Cap.113. The second method is a Members’ Voluntary Winding Up under Sections 268 to 274 of the Companies Law, Cap.113.
The Strike-off Method
Under Cap.113, the Registrar of Companies may remove from the Register any company which appears not to be doing business and has no external liabilities. The procedure may be initiated by the shareholders and directors of the company writing to the Registrar informing him in relation to the company’s inactivity and inviting him to strike the company off from the Register.
The striking off procedure is quite a simple procedure. However, there are limitations and disadvantages which should be considered before deciding such strike off. When a company is struck off the register, any property it has devolves to the Republic of Cyprus. The procedure is therefore inappropriate for a company which has significant assets that have not been distributed to members. The financial statements of the company must be prepared until the date the company ceased activities. These accounts must be filed with the relevant income tax return to the Cyprus tax office and after the tax office examines and agrees that any tax liability is settled, a Tax Clearance certificate will be issued. The procedure for the strike-off the Register normally takes approximately 1 year (depending on the Registrar's workload) to be completed.
Once the Registrar has published in the Official Gazette notice that the company has been struck off the register, such company is considered as having been dissolved. The Court has power on the basis of an application to this direction (Section 327(5)(b) of the Companies' Law is silent as to who may so apply) to order the winding up of such company. A company under liquidation should appoint a liquidator. The liquidator then takes possession of the company’s assets and uses them to settle the liquidation costs as well as any creditor’s claims. Any surplus of course will be returned to the members of the Company.
A company which has been struck off the register can be restored provided that an application is made to this direction before the expiration of 20 years from the publication in the Gazette of the notice. Such application can be made either by the company or any of its members.
Members’ Voluntary Liquidation
According to the Law, a company may be wound up voluntarily (a) when the period fixed for its duration by the Articles expires; (b) if the company so resolves by special resolution; or if the company resolves by an extraordinary resolution because it cannot, by reason of its liabilities, continue its business.
This method is used only if there is a need for a liquidator to be formally appointed in order to distribute certain assets, primarily for tax reasons. In order to proceed with the voluntary liquidation, the liquidator must confirm that the company is solvent.
A voluntary winding up commences at the time of passing of the resolution for winding up. The majority of directors of the company in a meeting have to make a statutory declaration that having made a full inquiry into the affairs of the company (by reviewing the financial statements) they are of the opinion that the company will be in a position to pay in full all of its debts and liabilities within a period not exceeding twelve months, from the commencement of the winding up as may be specified in the declaration. Such declaration should be made within five weeks immediately preceding the date of passing the resolution of wounding up the Company, and needs to embody a statement of the Company’s assets and liabilities as at the latest practical date before the declaration.
It is important to note that any Director making the declaration without having reasonable grounds that the Company can pay in full all its liabilities within the specified period, shall be liable for imprisonment or fine or both if this should turn out not to be the case.
Once the Registrar of Companies is duly notified of such a declaration of solvency, the General Meeting of the Company resolves to wind up the Company and appoints a liquidator. At this point the Company also decides upon the remuneration of the liquidator.
The liquidator then takes possession of the company’s assets and uses them to settle the costs of liquidation as well as creditor’s claims. Any surplus of course is returned to the members of the Company.
Following distribution of the assets, the liquidator calls a final meeting of members where he presents full account of his receipts and payment. Such meeting must be published in the official Gazette at least one month in advance.
Within a week after the meeting, the liquidator is required to submit to the Registrar of Companies a report of the meeting together with a copy of his account and 3 months after registration of these documents the dissolution of the Company is published in the Official Gazette of the Republic.
If no declaration of solvency is made then the voluntary winding up is considered as a creditors’ voluntary winding up. The procedure shall commence by passing the relevant resolution as referred above and the Company shall call a meeting of the creditors for the same day as, or on the next day after the meeting at which the resolution for voluntary winding up is proposed. The meeting is advertised in the Official Gazette and at least two newspapers in the District where the registered office of the company is situated.
The Registrar of Companies will issue a Certificate of Dissolution within 3 months from this date of filing and the company is deemed to be dissolved. The procedure takes approximately 6 months to be completed.
Differences between the two types of dissolving a company
The main difference between the two methods has been covered above i.e. the procedure, the costs and timing.
What needs to be addressed with regards to the strike off method is that if a company or any member or creditor of that company suffers by the company having been struck off the register, the Court, on an application made before the expiration of twenty years from the publication in the Gazette of the notice for the strike-off, if satisfied that the company was at the time of the striking off carrying on business, or was in operation, may order that the company is restored to the Register and the company shall be deemed to have continued its existence as if its name had not been struck off.
In the case where a company has been dissolved with voluntary liquidation, the Court may at any time within two years of the date of dissolution, on an application being made for the purpose by the liquidator of the company or by any other person who appears to the Court to be interested, make an order, upon such terms as the Court thinks fit, declaring the dissolution to have been void.