1 Introduction
When a company enters compulsory liquidation, one of the most significant legal consequences is the automatic stay on legal proceedings. This stay, triggered by a winding-up order or the appointment of a provisional liquidator, protects the company’s assets and ensures creditor claims are handled in an orderly and efficient manner.
2 Does the Automatic Stay Apply to Foreign Proceedings?
2.1 Section 220 of the Companies Law, Cap.113, does not have extraterritorial effect, meaning it does not automatically prevent creditors from pursuing claims in foreign courts.
2.2 However, this is subject to the provisions of the EU Insolvency Regulation (Regulation (EU) 2015/848), which provides that:
2.2.1 a winding-up order issued by the court which has primary jurisdiction over insolvency proceedings is automatically recognized across all EU Member States.
2.2.2 The winding-up order has the same effect in all EU Member States.
Key Takeaway: If the EU Insolvency Regulation applies, the automatic stay extends beyond Cyprus, preventing creditors from bypassing it by initiating claims in other EU jurisdictions, unless they obtain leave of the court.
3 Court Leave: Granted or Denied?
3.1 The court will generally refuse leave if, for example:
3.1.1 the claim can be handled more efficiently within the liquidation process;
3.1.2 the legal action would cause unnecessary delays or expenses.
3.2 However, courts may allow proceedings to continue if the case involves complex legal matters that cannot be fairly resolved within the liquidation framework.
4 Key Takeaways for Companies in Compulsory Liquidation and Creditors
4.1 Once a winding-up order is issued or a provisional liquidator is appointed, an automatic stay applies to all legal proceedings against the company and its property.
4.2 If the EU Insolvency Regulation applies, the automatic stay also extends to legal actions in other EU Member States.
4.3 Creditors can only initiate legal action with court leave.
5 Do You Need Legal Advice on Claims Involving an Insolvent Company?
5.1 If your company is facing insolvency, or if you are a creditor considering legal action against a company in liquidation, it is essential to understand how the automatic stay impacts your options.
- For companies facing insolvency proceedings: Early legal advice helps protect assets, comply with insolvency laws, and manage the process effectively.
- For creditors pursuing claims: Gaining insight into safeguarding your interests and maximising recovery in the liquidation process.
At Kaimakliotis LLC, we specialize in advising both companies and creditors on insolvency matters. Whether you need assistance to protect your company’s interests or navigate legal claims during compulsory liquidation, our experienced legal team is here to help
Key Contacts
For further information, please contact:
Andrea Psara
Partner
Tel: +357 24 01 01 12
andrea.psara@kaimakliotis.com
Elli Economou
Junior Associate
Tel: +357 24 01 01 09
elli.economou@kaimakliotis.com