SARE, closed… due to fraud!
In the recent decision of Re SARE Public Company Limited, Petition 554/2017, 19/05/2023 the District Court of Nicosia, Cyprus issued an involuntary winding-up order against a Cyprus company on “just and equitable” grounds, due to the fraud committed by the persons controlling the company.
The petition was filed by the company’s minority shareholders, holding less than 7% of the company’s issued share capital.
The petitioners alleged that the affairs of the company were carried out in an oppressive manner against them, the funds of the company had significantly reduced and unsecured loans had been granted to one of the shareholders of the company. This resulted in the alienation of GBP325million that the petitioners, and others, had invested into the company and, consequently, the company did not meet its investment expectations and became insolvent. In essence, the minority shareholders alleged that the persons controlling the company used it to conduct fraud, leading to its financial ruin.
The winding-up order was requested pursuant to section 211(f) of the Companies Law, Cap. 113, as amended, which provides that, a Cyprus company may be wound-up by the court, among other circumstances, if the court is of the opinion that it is just and equitable that the company should be wound-up.
With reference to English case law, the judge determined that the conduct of fraud by persons controlling a company gave its minority shareholders locus standi to promote a winding-up petition against it since this may be the only way in which the alienated funds may be recovered.
Notwithstanding that the fraud had, in fact, succeeded and the company lacked assets, the issuance of the winding-up order would allow for a thorough investigation to be carried out, which would increase the possibility of unveiling the fraud and recovering the alienated GBP325million.
The court therefore granted the petition and ordered the winding-up of the company on just and equitable grounds.
This marks the first time in Cyprus that the court has acknowledged that fraud constitutes grounds for involuntary winding-up, and the impact of the decision bolsters minority shareholder protection.
This decision, together with the establishment of the new Commercial Court in Cyprus and the option to use the English language in those proceedings, as well as the new reforms to the judicial system, including the new Civil Procedure Rules, are evidence of Cyprus’ continued commitment to cement itself as a reliable and attractive business hub.
