The relevant provision of Article 220 of the Companies Law Cap. 113 provides that in the event that a company liquidation order has been issued or a temporary liquidator appointed, no action or proceeding shall be continued or commenced against the company except with the permission of the court and under such conditions which the court may impose. The purpose of the legislature according to jurisprudence is to protect the creditors and property of the company in liquidation, so that creditors of the same class receive equal payment and to prevent any proceedings by a creditor through which they obtain a benefit. The relevant permission is required only in the event that proceedings are initiated against the company under liquidation and not by it.
An issue arose before the court of appeal, where the court of liquidation granted leave to commence or continue an action or other proceeding against a company in liquidation, as to whether such leave also applied to the appeal. Despite the absence of jurisprudence, the court of appeal answered the question in the context of its decision in C.A.223/2021, dated June 27, where the liquidator of a company in liquidation objected that the appellants were justified in relying on the order issued to continue the lawsuit, in the hearing of the appeal which is a completely different process.
Decision
The court of appeal did not agree with the liquidator. Noting the wording of article 220 and also referring to an English lawbook, it decided that the procedure that begins with the notice of appeal, is not unrelated nor can it be completely separated from the primary procedure, which it aims to overturn. The appeal process should be regarded for the purposes of section 220 as part of the process for which leave was initially granted.
It further emphasised that any other interpretation which supports that the permission given to take legal measures in the first instance stage covers only the filing and furtherance of the action is not only formalistic but may also lead to illogical results since in this case, it is likely that one contends and for any interlocutory application or any other proceeding or step within the suit, the leave of the winding-up court would also be required. On the contrary, the correct interpretation is that leave to continue the action includes the continuation of all legal measures against the company in liquidation, which are taken in connection with the action.
Conclusion
The court concluded that the granting of permission to the appellants to continue the lawsuit pursuant to Article 220 of Chapter 113, included the taking and continuation of measures against the liquidator of the company, and covered not only the first instance procedure for bringing the lawsuit, but also any appeals registered either on interim decisions, such as the present one issued in the context of the lawsuit, but also on appeals on the final decision of the court of first instance.
In this case, it ruled that the court of liquidation granted permission for the continuation of the lawsuit, considering that in this way, the interests of all creditors were not adversely affected. It would not serve at all the confirmation by the court of liquidation of its above finding, for the justification of the granting of leave and for the present appeal.
On the contrary, this would have the effect of delaying the adjudication of the appeal for purely formal reasons, since the court of liquidation had already considered that it was justified to grant leave and/or adjudicate the action without considering that this will adversely affect all creditors, which includes the taking of legal measures by the appellants against the liquidator, in the context of this appeal.
The court held that accepting the liquidator’s position would lead to the paradoxical result that the plaintiffs could not, without additional leave, challenge an interim decision of the court, for the trial of which leave had already been given. According to the judgment this is not the purpose of article 220 of Cap.113, that is to examine for each new judicial proceeding of the case, whether conditions for granting a leave are met.
Consequently, it was concluded that the position of the liquidator of the company that leave should be obtained from the court of liquidation, except for the first instance proceedings and for the continuation of the present appeal, was not correct.
George Coucounis is a lawyer specialising in Immovable Property Law, based in Larnaca. E-mail: coucounis.law@cytanet.com.cy, tel: 24818288
