Company Strike Off in Cyprus

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Always my first response to a company strike off in Cyprus is to avoid this method. The reasons for that can be better understood by considering the most recent Limassol District Court case regarding Fariapo Trading Ltd, and regarding the Companies Law, Chapter 113, and regarding Avgoustinos Food Industry Ltd application No. 236/2018 (the “Fariapo Case”).

Executive Summary

In the Fariapo Case, the court allowed the reinstatement of the Company and the following conclusions can be drawn:

• The last directors will be responsible for the company’s affairs upon it being reinstated
• The court is not eager to favor negligent directors’ appeals
• Current or potential creditors can easily reinstate the Company
• The company can be reinstated as the court directs e.g:
  • with new directors
  • with previous directors
  • for a specific purpose only

Fariapo Case

Avgoustinos Food Industry Ltd (the “Applicant”) had a claim against Fariapo Trading Ltd (the “Company”) for the amount of around €2,600. The Company was struck off the register of incorporated companies on the 11th of January 2016 by the Department of the Registrar of Companies, in accordance with Section 327 of the Companies Law. At the time of the strike off the Company had a sole director (the “Sole Director”). The strike off was published in the official newspaper of the Republic of Cyprus on the same date. The strike off occurred due to:

1. Lack, on behalf of the Company, to comply with the statutory obligations ;
2. The non-submission of the required financial reports and annual returns; and
3. None payment of the annual levy.

On the 19th of April 2018, the Applicant submitted to the district court of Limassol to reinstate the Company on the list of registered companies in Cyprus and asked that the Company be reinstated to its previous condition with all the directors appointed as if the company was never struck off.

The Sole Director appealed, inter alia, on the following grounds:

1. the reinstatement of the company will not serve any purpose (“Purpose Test”) ;
2. the Company did not carry out any activities at the time of its strike off (“Operational Test”);
3. the applicant was not a creditor of the Company (“Creditor Test”);

The president of the District Court of Limassol, Hon. L. Paschalides examined each and every one of the arguments raised in light of the available legislation and carefully considered Paragraph 7 of Section 327 of the Cyprus Companies Law relating to strike off in Cyprus.

Purpose Test 

An aggrieved party can successfully reinstate a struck-off Cyprus company in order to commence legal proceedings to collect any amount owed to such aggrieved party. The primary reasoning for this is because a Cypriot company can, quite easily and on its own behalf, apply to be struck off in Cyprus. Being struck-off, creditors proceedings against the Cypriot company should not be disallowed otherwise every business owner could at any given moment strike off the Company without any recourse.

Operational Test

The concept of “carrying on a business” was considered in the context of another case dealing with the fraud on the creditors.  Carrying on a business is not synonymous with actively trading and even the distribution of assets was treated as carrying on a business. Operational on the other hand can be understood as having a passive existence. The judge accordingly directed that the words should be interpreted in a wider sense.

Considering the definition of dormant companies in Cyprus we can also draw inference from the registrar of companies as well as the department of taxation. A single asset or liability on the balance sheet immediately treats the company as “operational” requiring said company to prepare accounts, audits and pay the annual levy.

Creditor Test

For the purposes of Paragraph 7, Section 327 of the Cyprus Companies Law, creditor should be read as extending to contingent or prospective creditors and it is unjust for the creditor’s success in reinstating a company to be determined by whether the claim is for a liquidated sum or not. Accordingly, the case law interprets “creditor” widely.

Obiter Dictum

The judge noted that it was to the knowledge of the director that the Company would have been struck off the register and as such it is unfair to disallow the reinstatement of the Company to its previous position. Since a director is allowed to operate under a separate legal personality, the least such director should do, is be responsible as a director, after all, it is due to her lack of responsibility that the company was struck off.

Decision

Hon. L. Paschalides ruled to reinstate the company in its previous condition and because the Director appealed the application all costs associated were ordered to be paid by the Director.

Law on Strike Off in Cyprus

 “If a Company or any member or creditor is aggrieved by the fact that the company has been struck off the register, the Court after, after an application made by the company or a member or creditor prior to the completion of 20 years from the date of publication in the Official Newspaper of the Republic of Cyprus as mentioned above, may, if satisfied that at the time of strike off the company was carrying out activities or that it was in operation, or otherwise that it is just that the company is reinstated to the register, to order the registration of the company to the register of active companies”

Paragraph 7 of Section 327 of the Companies Law, Chapter 113 of the Laws of the Republic of Cyprus  relates to strike off in Cyprus and the ame is i

Case Law Considered

1. Logicom Ltd v. P G Caresys Ltd, (2005) 1 A.A.Δ 877;
2. In re Waikiwi Shipping Company Limited (1981) JSC 147;
3. Re Harvest Lane Motor Bodies Ltd [1968] 2 All E.R. 1012;
4. Deauville Communications Worldwide Ltd. Re [2002] IESC 19; (5) Re Sarflax Limited (1969) 1 All E.R. 529