Bankruptcy of a company in Cyprus: main aspects, procedures and documents

Corporate bankruptcy in Cyprus is a legal process that can be initiated when a company is unable to meet its financial obligations to its creditors. In this blog we will look at when bankruptcy applies, how the process is formalised and what documents are required to start the process.

Reasons for bankruptcy

Bankruptcy can be initiated for a number of reasons:

Inability to pay debts:

1. Description. A company is unable to pay its debts on time. This can take the form of delayed wages, outstanding loans, unpaid supplier invoices and more.
2. Examples. If the company is sued by creditors for late payment or if its bank accounts are frozen.

Negative equity:

1. Description. A company's assets are less than its liabilities, resulting in negative equity.
2. Examples. A company has debts of €1 million while the value of all its assets is only €700,000.

Judgment:

1. Description. The court can declare a company bankrupt at the request of creditors or the company itself.
2. Examples. Creditors petition the court to declare the company bankrupt and the court finds grounds to satisfy their claims.

The main stages of bankruptcy proceedings

The bankruptcy of a company in Cyprus involves several main stages:

Preparation and filing of the petition:

1. Description. The process begins with the preparation of a bankruptcy petition, which can be filed with the court either by the company itself or by its creditors.
2. Documents. The petition must contain a detailed statement of the reasons for the bankruptcy and must be accompanied by financial statements.

Appointment of liquidator:

1. Description. Once a bankruptcy petition has been accepted by the court, a liquidator is appointed to manage the company's assets and liabilities.
2. Functions of the liquidator. The liquidator deals with the valuation of assets, the realisation of property, the payment of creditors and the general administration of the liquidation.

Declaration of bankruptcy:

1. Description. The court examines all the documents submitted and, after considering all the circumstances of the case, decides to declare the company bankrupt.
2. Legal consequences. From the moment of the declaration of bankruptcy, all the company's management activities are transferred to the liquidator.

Liquidation of assets:

1. Description. The liquidator evaluates and sells the company's assets to satisfy creditors' claims.
2. Liquidation process. Includes assessing the market value of the assets, auction or direct sale.

Payment of creditors:

1. Description. Proceeds from the sale of assets are distributed to creditors in order of priority.
2. Order of satisfaction of claims. Secured creditors are paid first, followed by unsecured creditors.

Closure of the Company:

1. Description. After all creditors' claims have been settled and the assets have been distributed, the liquidator files a liquidation report with the court.
2. Consequences. The court decides on the closure of the bankruptcy proceedings and the official closure of the company.

Documents required to start the procedure

In order to commence bankruptcy proceedings in Cyprus, the following documents must be prepared and filed:

Bankruptcy petition:

1. Description. A formal petition to be filed with the court stating the grounds for bankruptcy.
2. Content. Justification of the grounds for bankruptcy, supported by financial data and legal arguments.

Financial statements:

1. Description. A set of financial documents including a balance sheet, profit and loss account and cash flow statement.
2. Purpose. Financial documents are used to prove that a company is insolvent.

List of creditors:

1. Description. A complete list of a company's creditors and the amounts owed to them.
2. Purpose. To record and subsequently satisfy the claims of creditors in the liquidation process.

Schedule of Assets and Liabilities:

1. Description. A detailed list of all the company's assets and liabilities.
2. Purpose. To assess liquidity and identify possible sources of repayment of debts.

Minutes of meetings:

1. Description. Minutes of meetings of shareholders and directors at which the decision to file for bankruptcy was taken.
2. Purpose. To confirm internal approval of the bankruptcy resolution.

Proof of debts:

1. Description. Documents proving the existence of debts owed to creditors (invoices, contracts, letters, etc.).
2. Purpose. To prove the validity of the creditors' claims.

Legal nuances and advice

Working with lawyers:

1. Description. The use of qualified lawyers specialising in company law and bankruptcy proceedings is recommended.
2. Advantages. Lawyers will help to ensure that documents are executed correctly, that legal requirements are met and that the company's interests are protected.

Meeting Deadlines:

1. Description. To avoid additional costs, it is important to comply strictly with all legal deadlines and procedures.
2. Risks. Failure to meet deadlines can lead to additional sanctions and complicate the process.

Stakeholder Information:

1. Description. It is necessary to inform all stakeholders (creditors, employees, shareholders) about the start and progress of the insolvency proceedings in a timely manner.
2. Methods. Sending official notices, publishing information on the company's website, holding meetings.

Bankruptcy in Cyprus is a complex and multifaceted process that requires careful preparation and attention at each stage. Compliance with all legal requirements and the timely filing of the necessary documents will help to minimise the risks and ensure the most effective resolution of the company's financial problems.

If you are faced with the need to initiate bankruptcy proceedings, it is advisable to seek professional legal assistance to properly organise the process and protect the interests of all parties.

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