Cyprus offshore company liquidation.
Things You Need to Know About Cyprus Offshore Company Liquidation
Due to the instabilityof global markets, several offshore companies are forced to apply for liquidation or become insolvent. Also, keep in mind that the related liquidation procedures may be time-consuming and challenging. In such cases, knowing about the different ways of offshore company liquidation is helpful. Moreover, you can reduce the duration of liquidating your company if the laid-down procedures are duly followed.
Cyprus is a popular offshore jurisdiction. However, if you are contemplating dissolving your offshore company in Cyprus, be aware that business cannot be abandoned without following the required protocols. Do not think that by neglecting the liquidation paperwork, your company will automatically be terminated, and the liquidation costs can be avoided. Bear in mind that your company could discontinue submitting the company’s annual accounts and paying taxes, but the company’s name is not removed from the Register of Companies. Besides, there will be the following consequences:
The company’s Director is held liable for any debts of the business entity
The state confiscates the company’s assets after 6 months
Individuals who were replaced as the company’s shareholders or directors cannot apply to the Registrar of Companies.
There is a riskof your reputation getting damaged because Cyprus holds European Council membership.
When a company decides to liquidate, the company’s assets are collected and distributed for settling the dues of the company’s creditors. Thereafter, the remaining assets are distributed among the shareholders according to their percentage of shareholdings.
Ways of Cyprus Company Liquidation
In accordance with Cyprus legislation, there are 3 ways of company liquidation.
Forced or Compulsory Liquidation
In Cyprus, forced liquidation refers to liquidating a company notwithstanding the will of the company’s stakeholders. The court passes orders to liquidate the company, in cases of forced or compulsory liquidation; while in the case of voluntary liquidation, the decision is taken within the company. The liquidation procedure is conducted by the Liquidator in forced liquidation cases.
As part of the compulsory liquidation proceedings, a petition has to be filed by a creditor, the company, or a contributory. The liquidation orders are passed by the court if the company does not hold the statutory meetings, submit the company reports, does not pay the debts, or does not transact any business within a year from incorporation.
Also, if the prevalent laws of the Republic of Cyprus are violated, the company may be forced to liquidate. The violations could pertain to conducting activities that are illegal or there may have been a clearviolation of laid-down rules by the authorities for the company. There could be other grounds for forced liquidation as well.
Normally, the abolished companies are those that have been discarded by the company’s principals.
Voluntary Liquidation
The liquidation of a Cyprus offshore company can be initiated by the shareholders or the company’s creditors. Depending on the party that has requested the liquidation, the procedure varies.
After requesting for liquidation by the company stakeholders, the process of voluntary liquidation is initiated by declaring the company’s solvency that means the shareholders agree to clear all debts within one year of the commencement of liquidation proceedings. Also, a special meeting has to be convened by the shareholders to convey their decision on voluntary liquidation and also, appoint a liquidator. The liquidator’s job is to gather the company’s assets and clear the creditors’ dues.
In cases where the company is declared insolvent, the creditors apply for voluntary liquidation. Also, the creditors call for a special meeting to announce the decision of the company members pertaining to winding up of the company. As part of the meeting, the creditors approve the liquidation decision, select a liquidator and also, may nominate an Inspection Committee.
As part of the liquidation procedure, the company is required to pay taxes & government fees, submit financial & audit reports, and close the company’s bank accounts.
In the event that a company has appointed a Nominee Director, then their resignation letter must be signed as well.
Also, the Registrar must be informed about the decision to voluntary liquidate the offshore company.
Strike-off Method
The easiest and simplest method of closing operations of a Cyprus company is the strike-off method. Usually, dormant companies use this method of company liquidation because they are no longer conducting business or do not have assets or liabilities.
Under the strike-off liquidation procedure, the company’s latest financial statements are required. Also, a Tax Clearance Certificate has to be obtained from the Inland Revenue Department. A letter signed by the Director requesting the company’s removal from the Registry of Companies is needed as well. Moreover, account statements indicating that the company has enough funds to pay the debts, fees, and taxes arerequired. Additionally, the bank accounts have to be closed.
Normally, the process takes up to 5-10 months.
Besides, the Registrar of Companies reserves the authority of strike ofa Cyprus-based company in cases where they have doubts that the company is not functional. Then, they may send a notice to the proposed company via post to ascertain the same. If there is no reply from the company after 1 month from sending the letter, then another letter is sent. Thereafter, after 1 month of sending the 2ndletter if the company does not respond, then the company is informed that they will be listed for strike-off by the Registrar in the Official Gazette. Yet again, if the company fails to comply, then another letter is sent, stating that the company name will be published and also, the entity will be struck-off within 3 months.
Voluntary Liquidation Vs Strike-Off
The various differences between voluntary liquidation and strike-off methods of liquidating an offshore company in Cyprus are detailed below.
Between the 2 methods, the voluntary liquidation one is far more complicated and costlier.
Also, the duration of voluntary liquidation is longer than the strike-off method. Under the strike-off method, you can liquidate the company within a fewmonths; whereas, for voluntary liquidation, the procedure takes a year or so.
Also, contrary to voluntary liquidation where a liquidator is appointed, no liquidator is required under the strike-off method.
Lastly, the strike-off method is used by dormant companies; and voluntary liquidation is not used by dormant companies.
