By George Coucounis
The liquidation of a company is an important action that affects both the interests of the company and those of its shareholders and creditors. It appears that the application for the liquidation of a company, especially when there is a deadlock in its administration and it is impossible to operate, should be served not only to the registered office but also to any affected person. In this way, the person affected will become aware of it and may appear before the Court and present his views. This right is based both on the rules of natural justice and on Article 30.3 of the Constitution, which requires the disclosure of the procedure to every person affected, even when there is a claim that he is acting against the interests of the company making its administration impossible. The legislative provision of article 372 of the Companies Law, Cap.113, provides that a document may be served on a company by post or by leaving it to the registered office of the company. However, the service of the procedure which may lead to the liquidation of the company is a matter of substance and the failure to serve is equivalent to depriving the person concerned of the right to be heard. The result of such a state of affairs and of an irregular procedure can be no other than to set aside the judgment ordering the liquidation of the company. The court, being in charge of the protection of the proceedings must check it and ensure that each affected person becomes aware of it before proceeding with the application of the provisions of Article 211 of Cap.113 which state that a company may be wound up by the Court, if the Court is of the opinion that it is fair and in accordance with the law of equity to dissolve the company.
According to the facts of the case as referred to in the judgment of the Supreme Court in the Civil Appeal 267/2011, dated 15.9.2017, the shareholder structure of the company being liquidated consisted of two persons each holding one-half of the share capital and one of them, according to the other party’s allegations, acted against the company’s interests causing a deadlock, making it impossible to operate. Consequently, he filed an application before the Court for its liquidation in accordance with the provisions of article 211(f) of Cap.113. The application was served to the Registrar of Companies and to the registered office of the company and the Court of first instance consider that the service was lawful and issued a liquidation order against the company, in its absence, and appointed a liquidator. The shareholder affected, who was not informed of the application, since it had been served to the registered office to a person who was not an employee of the company and had no relation with it, filed an application to set aside the liquidation order. The Court of first instance dismissed this application and the shareholder affected applied to the Supreme Court, which set aside the first instance judgment and annulled the liquidation order and the appointment of the liquidator, giving at the same time the shareholder the right to file an appearance. The Supreme Court also ordered that the case will be put before another judge to try it. It referred to case-law and to the constitutional right of every affected person to have a reasonable chance to appear in the proceedings and put his position forward; it also stressed out that the failure to serve the application for the company’s liquidation to the affected shareholder constituted a fundamental defect creating an obligation to set the application aside.
The Supreme Court added that it has been established in case-law that every litigant has the right to become duly aware for the Court proceedings issued against him and put his case forward, a right which is safeguarded by article 30.3(a) of the Constitution and by the Court, which must be assured by proper service of the proceedings. Service to the litigants or to persons who are or may be affected by the Court proceedings is a substantial matter and failure to serve is equal to depriving them of their right to be heard, causing an order or a judgement issued in the proceedings to become void. Moreover, as mentioned in case-law, the Court in the exercise of its inherent jurisdiction, may set aside such an order without the need to file an appeal against it.