It is a contractual right and is not subject to validation by the court or approval or acceptance by the registrar of companies
The security afforded to a company creditor by a debenture of floating charge on the assets of a company proves its worthiness when the company does not meet its obligations and the creditor exercises the right to appoint a receiver or administrator. The floating charge becomes fixed and is attached to the company’s assets which the receiver or administrator takes possession of with the aim of liquidating them to satisfy the company’s debt.
The appointment of a receiver is made on the basis of the debenture terms. It is a contractual right of the secured creditor and not subject to validation by the court or approval by the registrar of companies. Article 97 (1) of the Companies Law, Chapter 113 states that if any person obtains an order for the appointment of a receiver or manager of the property of a company, or appoints one shall, within seven days from the date of the order or appointment, give notice of it to the registrar of companies, and the registrar shall, on payment of a fee, enter it in the register of charges.
The submission of a notice and its registration aims at the formal completion of the appointment and to give the necessary publicity and enforceability to third parties, as emphasised by the District Court of Limassol in a judgement issued on July 25. The existence of a liquidator does not preclude the appointment of a receiver under the debenture of the floating charge. In fact, the issuance of a liquidation order, as the court states, crystallises the floating charge. The receiver appointed by the creditor has limited powers and acts only as the representative of the creditor and cannot also act as the representative of the company in liquidation or other creditors, unless authorised by the liquidator.
The court was dealing with the application of a receiver seeking an order that his appointment was valid and an order ordering the registrar of companies to deliver documents confirming his appointment. The creditor who appointed him sent the proper notices of his appointment under section 97 (1), but the registrar returned the forms, informing him that the requested services were rejected because the companies were under liquidation. The registrar relied on Article 220 of Cap.113 which provides that when a winding-up order has been made or a provisionally liquidator appointed, no action shall proceed against the company, except by leave of the court and subject to terms the court imposes.
The finding of the court was that it had before it not an action for ascertainment of substantive rights, but a corporate application by an applicant purporting to be appointed under a debenture of floating charge and a request for directions. The appointment was disputed as the formal part of its process was not completed, due to the possibly incorrect interpretation of the Law by the registrar. The court recognised that the remedies sought were premature as the appointment process could not be circumvented.
The applicant could bring an action to seek any remedies under contract law. However, he is entitled to file an application only if the process of his appointment is completed and exercises corporate duties.
The court concluded it did not validate the appointment of receiver or administrator on the basis of a debenture of floating charge and no such validation could be sought in the context of the application. A more appropriate remedy for the resolution of such civil rights-defining disputes would be an action, so the relevant evidence bearing on the contractual rights can be fully presented. Therefore, it could not issue any of the orders requested and rejected the application.
George Coucounis is a lawyer practising in Larnaca and the founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]