Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
The legal framework for handling people in bankruptcy as well as insolvency of a business consists of the Bankruptcy Act and the Companies Act.
Under Cypriot legislation a business is pronounced bankrupt if it cannot meet its financial liabilities within a set time limit. In such cases, the liquidator of the business will use its liquid assets to pay off creditors.
Cyprus's Companies Act governs bankruptcy proceedings.
Compulsory liquidation may be initiated by the courts. Voluntary liquidation is initiated by a decision made by shareholders and creditors. The procedure may be initiated when, for instance:
- the members of the enterprise deem it necessary for the business to be liquidated
- the business fails to begin trading within a year of its formation, or it ceases trading for one year;
- the business is unable to discharge its debts.
The competent court is the court of the district in which the company has its declared registered office.
Dealing with liquidation
Once the company liquidator sells the assets of the company, earnings are split among creditors in accordance with the priorities established by the Act.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy procedure: a step-by-step guide
After committing the act of bankruptcy the creditor/s or debtor are entitled to request issuance of a decree of receipt. If the debtor has not repaid his debts by then, the Creditors First Meeting is held where creditors decide to declare the debtor bankrupt and decide the appointment of the Official Receiver or any other persons as trustees of his assets.
The decision for voluntary termination is taken by shareholders and/or creditors of the company. In such cases, the decision must be published in the Official Government Gazette of the Republic of Cyprus within 14 days.
The procedure commences on the day the decision is approved. Once the liquidator has fully discharged his duty to the company, he must be called upon to prepare a plan and a report in regard to the dissolution of the company and the discharge of its debts.
The relevant documents will be put before a meeting of the shareholders. One week after the meeting, the liquidator of the business will be called upon to submit the report and final accounts to the Registrar of Companies.
In the event of compulsory liquidation the court must communicate the proceedings to the company. Following a court ruling, all pending actions against the business are suspended. The court appoints a liquidator to the business who, once debts have been discharged, petitions for its final dissolution. Pronouncement of this dissolution marks the end of the business.
The Cyprus Government's Internet portal provides useful information on business activities in Cyprus. It also offers a list of non-governmental websites with information concerning Cypriot laws and various agencies that can help resolve business issues.