In the recent judgment of the new Cyprus Court of Appeal dated 09/02/2024, Regarding the Petition of Evelyn Bates v. Regarding the Company M. Moniatis & Sons Ltd, Civil Appeal no. 145/2018, 9/2/2024 the following were decided:

1. Presumptions of Insolvency based on article 211 and 212 of the Companies Law - Inability to Pay Debts:

The creditor's right to request a company liquidation due to insolvency is given by Article 211 (e) of Chapter 113, which states that a company can be liquidated if it is unable to pay its debts. Certain presumptions of insolvency are defined in Article 212 of Chapter 113, including the case where the company fails to pay its debt, with the lapse of three weeks from the creditor's personal demand for payment to it (see Article 212( a) of Chapter 113). Another presumption of insolvency is defined in Article 212 (b) in the case of return as unenforceable, of any enforcement measure against the company.

In the event that the application is based on Article 212 (a), the condition of serving at the registered office of the company, a written demand letter for payment of the amount due, which should exceed €5,000.00, must be proven. According to Article 212 (a) service is not required to be made on an officer of the company. It is enough to do it to an authorised person, but always at the company's registered office (see C. Phasarias (Automotive Centre) Ltd v. "Leonik" Concrete Company Ltd (2009) 1 A.A.D 1457).

2. An important judgment in relation to the appropriate way of adjudicating company court applications, where as a general rule they should be tried on the basis of affidavits and without any oral testimony:

With reference to the procedure followed before the Court and the method of proof of the case, the case of Kasparis (2013) 1 (C) A.A.D 2476 is relevant. It was said that corporate applications such as the application for liquidation of a company are usually heard on the basis of of facts supporting the application and objection respectively as certified by the accompanying affidavits unless otherwise provided in the Companies Regulations (see Section 92 of the Companies (Winding Up) Regulations 1933 and KMC Motors Ltd v. Josephanco Trading and Contracting Company ( 1984) 1 A.A.D. 390). Further reference was made to the following extract from Pennington Company Law, 4th ed., p. 698:

"The hearing of a winding up petition is held in open court by one of the judges of the Companies Court. The evidence on the hearing consists of the affidavits filed in support of and against the petition, unless the court permits testimony to be given orally. The affidavit verifying the petition is prima facie proof of the facts alleged by it and suffices to prove the petitioner's case unless there are affidavits filed in opposition."

3. Conditions for liquidation on the basis of inability to pay debts and service of notice of debt demand:

In the present case, the trial Court, after examining all the material brought before it in the form of sworn statements, correctly found that all the conditions of Sections 211(e) and 212(a) of Chapter 113 for the issuance of a liquidation order of the appellant were met. Specifically, the appellant owes the respondent an amount in excess of €5,000, the amount owed is specific and comes from a court decision whose execution has not been stayed, a relevant claim has been served on the appellant's registered office and for the next three weeks, the appellant did not arrange the amount due.

It was also very correctly held at first instance that by satisfying the provisions of Section 212 (a) of Cap. 113, the appellant bore the burden of proving that it did not "neglect" to pay the respondent's claim because it otherwise has a substantial and reasonable defense (see Dimitris Auxentiou Son (Agricultural Machinery) Limited v. Hellenic Bank Public Company Limited, (2014) 1 A.A.D 2534).

4. The existence of an appeal against a decision or an intention to register a suspension of execution of the decision does not automatically create the existence of a bona fide debt dispute or a substantial and reasonable defense to the debt:

The fact that the appellant has filed an appeal against the judgment awarding the judgment debt or that he intends to file an application for a stay of execution does not in itself mean that he has a substantial and reasonable defense. The same applies to the allegedly adverse effects of the liquidation order on the business activity of the appellant.

5. Conditions for substantiating an abuse of court process in the context of liquidations – need for the existence of parallel improper motives, fraud or bad faith in promoting liquidation:

Abuse of the judicial process is defined, among other things, as the use of the Court's proceedings for an ulterior purpose or the adoption by a party of parallel remedies to pursue similar goals (see, among others, Gennaro Perrella (1995) 1 A.A.D 217) .

As the first-instance Court very correctly ruled, no other purpose of the appellant in promoting the liquidation application in question is demonstrated, despite the registration of an appeal against the decision on the lawsuit and the intention of the appellant to register a request for the suspension of the decision in question. Nor does the position of adverse economic effects on the appellant demonstrate an ulterior motive on the part of the appellant. We would add that a liquidation decree, by its very nature, has a catalytic effect on a company since it essentially stops its economic activity. However, this fact does not in itself demonstrate abuse of the judicial process, without proof of an ulterior motive by the creditor, which constitutes a necessary element for proving abuse.

We emphasize in this regard that the application for liquidation is not a method of execution and is not intended to force the company to pay its debt, but to protect the property of the company so that it can be used for the benefit of all creditors (see the book "The Liquidation of Companies" Dr. Andreas P. Poiti p.24 footnote 76a).

The decision Petraki v. Kimonos (2006) 1 A.A.D. is also relevant by analogy. 1311, although it concerned a bankruptcy petition. In the said judgment it was said that the application for the issuance of a receivership order is not considered to be made for a parallel and unfair purpose nor is it an abuse of the judicial process, even if it results in some advantage to the creditor, if there is no evidence of fraud or wrongful securing of money or advantages for the benefit of the specific applicant - creditor and to the detriment of the debtor and his other creditors.

In view of all the above, the Court concluded that the judgment of the Court of First Instance is correct that from the material placed before it, it was proved that the appellant was unable to pay her debts, and furthermore that no testimony has been presented to demonstrate that the liquidation application in question was registered for another purpose or that it constitutes an abuse of the judicial process.

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