Reactivation

A Cyprus company can be struck of the corporate registry for several reasons. The separation of the legal entity and the individuals running the company potentially triggers a need to reactivate or restore a Cyprus company that seized to exist. Even though personal liability and responsibilities must often be confirmed by the court, avoiding such accountability is recommended.

Recent years revealed several justifications to reinstate or reactivate Cyprus companies. The centre of gravity of the European Debt Crisis emerged in Southern Europe. Cyprus had severe exposure to Greek debt. The decline of the European economy triggered a further downfall that ultimately led to the closure of Cyprus Popular Bank, also known as Laiki Bank. Several corporate customers of the bank were unable to reclaim their deposit or take legal action against the bank because the company was not in good standing. A similar situation occurred later when other banks in Cyprus failed.

In line with a bank failure, inactive legal entities have no rights towards its assumed counterparts. An inverted situation applies to stakeholders with claims against the inactive company. To avoid that the court allows to pierce the corporate veil and hold beneficiaries responsible or even liable for acts of the company, the legal entity should at least be in good standing to avoid personal accountability. Where the inactive company itself has a claim against a third party, reimbursement is often difficult. The legal entity separates the corporate personality from the operational responsible individuals. Therefore, only the company, or professionals appointed by the courts, can act for and on behalf of the (inactive) company.

When third parties assume control over a Cyprus company, know your client procedures must be warranted. Control over a company can be transferred with knowledge and approval of the previous owner, but also by justifiable transmission such as inheritance or expropriation. New ownership potentially requires the reactivation of a Cyprus company. The procedures for reactivation depend on a variety of factors and should be addressed with care to avoid further challenges.