Cyprus Mail
CM Regular ColumnistOpinion

Application for the liquidation of a company

By George Coucounis

EVERY member of a company expects its officials will act with due diligence and in good faith in order to serve its interest, refraining from any act which may damage or negatively affect the affairs of the company. Any negative approach by a member, especially when the company depends on only two directors who each own 50% of the shares, may cause a deadlock which could affect its business and may lead to its liquidation. When personal affairs between members of a company make their participation in the company impossible, they should appoint a suitable person to replace them. The possibility of convening a meeting of the board of directors is ensured with the participation of more than two members – partners in the company so that decisions will be taken even in the case of a disagreement. The existence of a third director or partner creating majority is to the benefit of the company and its members avoiding any possible deadlock. Where a member submits an application to the court being a contributor, because he believes that it is fair and in accordance with the law of equity for the company to be liquidated, he has the burden to persuade the court that he is entitled to such a remedy either through its liquidation or any other manner and that in the absence of any other remedy, it is just for the company to be liquidated. However, if the member requests without any justification the liquidation of the company instead of another remedy, the court will not issue such an order.

Within the context of the application for the liquidation of a company, the court examines whether a disagreement exists between its members in respect of the manner of its management. The aforesaid was mentioned in a judgement issued by the District Court of Larnaca on 10.5.2019, whereby it was also said that the particularity of the liquidation application of the company requires to be heard based on the submitted affidavits of the parties, with the possibility of submitting oral evidence explicitly through the cross-examination of the affiants; such an order for cross-examination must be rarely issued, having in mind that the aforesaid application is not offered for the issue of a judgment on the general rights and obligations of the parties, but its exclusive purpose is to issue the liquidation order. Where the liquidation application is based on a company being liquidated by the court if it is of the opinion that this is just and in accordance with the law of equity, the applicant must appear with clean hands, since if it is found the deadlock is due to him, the application will be dismissed.

The court in the aforesaid judgment examining an interlocutory application for the issue of an order for the cross-examination of the affiants, decided that such an order was necessary, since the decision on the credibility of the parties is needed for the court to decide on their contradicting allegations. In the event that any allegations remain unanswered, the court will have the difficult task to decide on the credibility of the witnesses only through their written affidavits, without having the opportunity to evaluate it through their cross-examination. Through cross-examination, it must be made clear that the issues will be crystallised and clarified and not obscured. It concluded that cross-examination is only ordered exceptionally, it is limited and its purpose is to serve the needs of the procedure and justice; through it, the court is assisted to issue its final judgement and be satisfied by law and consciousness, referring to the relevant factors justifying it.

George Coucounis is a lawyer practicing in Larnaca and is the founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]

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