Liquidation

Court Liquidation

A winding up of a company on foot of a petition presented to the Court is known as a Court or a Compulsory Liquidation.

Who can petition the Court to wind up a company?
A company, a director or shareholder may petition the Court for the winding up of the company or more likely a creditor of the company can make this petition on foot of an unpaid sum owing by the company to the creditor.

The applicant must demonstrate that the company is unable to pay its debts.

In Cyprus, the Official Receiver initially acts as the Liquidator to the company as the post has always been combined with that of Registrar of Companies. The Official Receiver may apply to the Court for another person to conduct the liquidation under his direction. The Official Receiver can convene meetings of members and creditors to ascertain their views on this issue.

Who is the Liquidator responsible to?
The Liquidator is an officer of the Court and is required to report to the Court on the work carried out in the Liquidation and his findings in respect of the investigation into the affairs of the company.

How can Baker Tilly assist?

On behalf of a company going into Liquidation:

  • Act as the company’s nominee as Liquidator following the appointment of the Official Receiver
  • Prepare the Statement of Affairs
  • Act on behalf of creditors of a company going into liquidation
  • Act as the creditor’s nominee as Liquidator following the appointment of the Official Receiver
  • Review a creditor’s claim against the company
  • Advise on retention of title rights

 

Creditors Voluntary Liquidation

A Creditors’ Voluntary Liquidation is when an insolvent company voluntarily enters Liquidation.

Who decides on who the Liquidator should be in a Creditors’ Voluntary Liquidation?
The company will usually have its own nominee as Liquidator in attendance at the creditors’ meeting. However, the creditors of the company are entitled to present an alternative nominee at the creditors’ meeting.

What are the implications for directors if a company is unable to pay its debts as they fall due?
In certain circumstances the directors may be liable for certain of the company liabilities; thus, directors need to be mindful of the current financial position of the company at all times and seek professional advice at the earliest possible time.

Once a decision has been made to place the company in Liquidation, what steps should the directors take?
The company should incur no further credit as it is insolvent.

If the bank account is overdrawn all future takings should be lodged into a separate bank account with a separate bank.

Creditors should not be allowed to remove any item from the premises, as all claims will be dealt with by the Liquidator once appointed.

What are the duties of a Liquidator?
Once appointed, the Liquidator is responsible for securing and realising all the company’s assets and distributing same in accordance with Company Law.

The Liquidator has a statutory obligation to carry out an investigation into the affairs of the company and must form a view on whether the directors have acted honestly and responsibly.

What is the procedure for appointing a Liquidator in a Creditors’ Voluntary Liquidation?
Once the directors resolve to make a recommendation to the members of the company to place the company into Creditors’ Voluntary Liquidation, meetings of both members and creditors should be convened giving sufficient notice, a minimum of 35 days.

The directors must then prepare an estimated statement of affairs which will be provided to each of the creditors at the meeting.

What is the role of a Committee of Inspection?
The Committee of Inspection is made up of members and creditors and their function is to assist the Liquidator when requested, approve fees and legal actions and attend meetings to review the course of the Liquidation.

If a creditor receives notification of a creditor’s meeting and they have stock at the company’s premises what should they do?
It is advisable for a creditor to attend at the company’s premises in order to carry out a stock-take of the goods on the premises on this date.

There are different types of retention of title clauses that form part of the contract of sale and the Liquidator will review the creditor’s retention of title clause in advance of returning any goods.

What types of Employee’s claims can arise in a Creditors’ Voluntary Liquidation?Employees are entitled to make a claim for arrears of wages, holiday pay, minimum notice and redundancy in the Liquidation which is payable by the Social Insurance Department.

How can Baker Tilly assist?

On behalf of the company going into Liquidation:

  • Act as the company’s nominee as Liquidator
  • Prepare a Statement of Affairs
  • On behalf of a creditor of a company going into Liquidation
  • Attend the creditors meeting
  • Act as the creditor’s nominee on the committee of inspection
  • Review a claim against the company
  • Advise on retention of title rights
Members’ Voluntary Liquidation

A company that has completed its purpose and is solvent may be wound down by way of a Members’ Voluntary Liquidation.

What is a key advantage of a Members’ Voluntary Liquidation?
This can be a tax efficient way for shareholders to extract funds from a company on cessation of trade as a capital gain on shareholders’ funds will be subject to Capital Gains Tax.

Where such funds are taken out as salary or dividend pre-liquidation, these monies would have been taxed at the shareholders marginal income tax rates.

Taxation
It is important to obtain tax planning advice prior to any cessation of trade or liquidation to ensure that tax costs can be minimised and the return to shareholders maximised.

How can Baker Tilly assist?

  • Act as the company’s nominee as Liquidator
  • Prepare the Statement of Affairs
  • Provide tax advice in advance of commencing the process