Insolvency in Cyprus

[Uffe]

Hoping to get some advice here even though situation is in Cyprus but as far i know Cypriotic law is based on UK law.

Short story, Me and 6 others formed a Limited company in 2012 and I accepted being put as single Director. As a product development company aim was to develop a product and sell it. From 2012 to 2015 all payments have been done by shareholders as there has been no income due to product being delayed and developers (who are also shareholders, did not come close to keeping their timeplan) and finally August 2015 i resigned as Director due to internal disagreements between the shareholders. Before resigning i informed all shareholders to cease trading and in short follow Bob-sponge plan as shareholders no longer wanted to fund the company debts. Our company sent out the insolvency letter to creditors which are two in numbers, one to the company who have been acting as registered office and one to another company who assisted in setting up the company formation.

Total debt owed to registered office was € 11.000 for financial statements for 2012 and 2013. Other debt was €7.000. Our company agreed to have a settlement plan with the registered office and have paid € 3.000 out of these before we sent out the Sponge bob letters.

No personal guarantee has been done by me as Director for either debts. We informed creditors we will apply for Strike-off within 3 months. We have now received letter saying from our registered office saying they will take us to court and sue both Company and me as Director for not upholding the settlement plan.

Should i be worried about following Bob-Sponge plan and can i be personally liable as former Director.? We tried to follow the settlement plan but due to internal disagreements as to how to continue with the settlement plan and broken internal promises i saw no other way out than to resign as Director. Company has no assets and not even a bank account, so all company debts so far has been paid out of own bank accounts and in certain cases debts has been paid by another company held by the majority shareholder which is not me. Since company has had zero income during these years, we do not owe the equivalent of HMRC in cyprus any money but i am not sure if financial statements for 2012 and 2013 has been sent to HMRC equivalent as the financial statements has been sent in.

Appreciate any answers.

/Uffe

 

[ethical PR]

I think you need to take advice from a Cypriot solicitors . you can't assume because it's based on UK law, it's the same.

Any personal liability would depends on whether there was a personal guarantee.

 

[Scalloway]

It's wonderful what google finds for you

http://www.totalserve.eu/informationsheets/en/Information Sheet No.96.pdf

 

[Uffe]

Thanks for the information sheet, however since I have resigned as Director and Company is insolvent, it seems as we have to wait for the creditors to do the winding-up procedure and it is formally set into liquidation. None of the shareholders have any interest in putting more personal funds into the company. According to Cyprus law as far as i know, every 6 month the registrar send notices to companies that have not filed the annual returns and if no answer from registered company the registrar strike-off the company.

Taking advice from a Cypriotic solicitor is a good advise but i have personally exhausted own funds and lost around 40 k Euro in this and cannot afford the fees of a solicitor.

So judging from answer it seems we must wait for the court order and take it from there. It seems though that the creditors cannot personally sue me as Director because the Company breached the settlement agreement and no personal guarantee was issued.

I was hoping if someone had any insight as to what to do other than to wait for the law suit and if I personally would need to worry.

br
Uffe

 

[Lisa Thomas]

Hi I cannot answer your query based on Cypriot Insolvency Law as I very rarely have to deal with Cross Border Insolvency and when I do I get the lawyers to advise as this is constantly changing! I can tell you my thoughts if this were a UK Ltd Co if that's any help, which is that the debtor will need to go to Court to get a Court order regarding the disputed debt they are chasing, then on the basis they will be unable to get paid they would need to pay additional costs to Liquidate. Suspect highly unlikely if they are taking decent legal advice. Ultimately there are no assets for a dividend to any creditors so not cost effective to follow through. The only way you could be found personally liable to make a payment is if a Liquidator found you guilty of misconduct and as long as the Company doesn't enter Liquidation and you haven't committed any misconduct then this is not something to worry about. The Liquidator can also pursue the Shareholders if they have taken funds that they shouldn't have or acted as shadow directors and committed misconduct. I would just leave things as they are at the moment, remind them the Company has no assets and they will need to find funds to Liquidate if they object to the striking off and see what comes out in the wash.

 

[Uffe]

Hi Lisa,
I have actually been in contact with a Cypriotic Lawyer and he says the same thing. It seems that UK Law and Cyprus Law are similar in that. No dividends has been taken and I or any other have not withdrawn a penny from Company. I appreciate your response and seems from what the lawyer in Cyprus said "unless you signed any blank checks, then they can charge you for criminal charges". So with the answer from the Cypriotic Lawyer it is now a waiting game to see if they will pursue liquidation. With regards to Court order, should I ignore any summons or reply to them? Not sure about that process and what is best.

 

[Lisa Thomas]

I would reply briefly telling then that the debt is disputed but the Company has no assets to pay any Order that might be grated in their favour therefore they would need to Liquidate the Company and then leave it. Good luck - keep us updated?

 

[Uffe]

An update on the matter is that nothing further has been heard from creditors in Cyprus as of now. To add though is that we have had two companies in Malta that and that we also sent Bob Sponge letter to the only one creditor there. Today i received a letter from Company registrar in Malta saying that due to Annual fees not being paid, they say "As Director of the above company, you have to date, become personally liable to pay the Annual fees and penalties". Failing to pay penalty, executive action will be taken against you.

I wonder if Director can be personally liable for Annual fees as the letter states? I know that not many have experience with companies in Malta but these companies are also limited companies. How do things work in UK, is Director personally responsible for Annual fees or can debt transfer from Company to Director? I have been in contact with registry at Malta and they are saying that their "strike off" which is called the "defunct" procedure can only start if Annual fees and penalties are paid.

Since not many know Maltese law, maybe at least someone can give fact about how it works in UK and if I should pay the Annual fees and penalties or just send Sponge bob letter back? However since Registrar says the "defunct" process cannot start before Annual fees are paid, I am not sure how to act, if it is better to pay and so that "defunct" procedure can start, or if it is better to send Sponge bob mail. The part that worries me is that they state that i have become personally liable (and they qoute terms of regulation 166 of Merchant Shipping Regulations.

Appreciate any thoughts or input.

Thanks

 

[Lisa Thomas]

Hi - In UK law Directors are not personally liable for such costs.

 

[Uffe]

Thanks Lisa.

I would like to believe same apply for Malta although if the case, I wonder if it is even legal for Registrar to state that.

 

[Simone D. Casadei B.]

Hi @Uffe and sorry for the bad situation you wrote us about.

In Malta, Directors are liable to a penalty if Annual return is not submitted to the Registrar:

If default [to complete the Annual return, sign it and forward it to the Registrar] is made in complying with the provisions of this article, every officer of the company who is in default shall be liable to a penalty, and, for every day during which the default continues, to a further penalty.​

(184(3), Malta Chapter 385, Companies Act)

Not sure if they are updated, but the penalty for failing to deposit the Annual return could be something as €2,3k (about £1,7k) + a daily penalty of about € 50 (about £37)

 

[Uffe]

Hello Simone,
Thanks for that info. Seems i will have no choice than to comply and pay annual fees and get the defunct process started. Hopefully after it is in defunct process, the annual return will not be requested more.

 

[Simone D. Casadei B.]

Sorry for the bad news, @Uffe. I wish you to fix this issue as soon as possible, and as soon as possible to completely forget it