A. What is a Statutory Demand Letter
A Statutory Demand Letter, is a form of claim against a Company, that serves as a formal demand of the payment of amounts owed to any person by the Company.
Such Letters of Demand, if drafted and served as per the provisions of applicable legislation, can have serious consequences on the Company. Failure to comply with such demand for payment, will deem the Company to be considered unable to pay its debts and thus, proceedings for the winding-up of the Company may be initiated.
Article 212 (a) of Companies Law, Cap. 113 is relevant, as not all amounts or Letters of demands can be considered “Statutory”. Said Article mentions that a Company is considered unable to pay its debts, inter alia, in the following scenario:
“If a creditor, by assignment or otherwise, to whom the Company owes an amount exceeding five thousand euros (€ 5,000), has served to the Company by delivering to the registered office of the Company a claim which demands from the Company to pay the amount due in this manner, and the Company for the next three weeks neglected to pay the amount or secure or settle it to the satisfaction of the creditor”
As this is a powerful tool, the requirements for a successful winding-up petition on this basis, are strict and are usually, the first point of discussion in winding up petitions at Court. The applicants (creditors) need to prove to, inter alia, the following:
- The applicants are creditors of the Company – according to Supreme Court case law, the scope of the term “creditor” is such that it includes any person who is entitled to receive a certain amount from the Company.
- The amount of the claim has not been paid, nor has any security been given, nor has any arrangement been made to the reasonable satisfaction of the creditor; within three weeks from the service of the Statutory Demand Letter
- there was a service of a Statutory Demand Letter at the registered office of the Company.
B. Service of the Statutory Demand Letter – Should it always be at the Registered Office of the Company?
Even though there are provisions in Civil Procedure Rules, allowing for the service of any document/process/writ of summons to a Director or Secretary of the Company, instead of service of such at the registered office, these provisions only apply in the absence of any other statutory provision. In this case, the legislation expressly provides for the service of the documents to the registered office of the Company.
In Phasarias -v- Leonik (2009) 1 ΑΑΔ 1457, the Statutory Demand Letter was served to a Director of the Company, and the Supreme Court of Cyprus concluded that this was not a proper and valid service as the legislation provides for service of said Letter to the registered office of the Company, and thus, such service did not satisfy the provisions of the legislation. As a result, the insolvency procedures could not progress on that basis.
The provisions of the legislation have caused practical problems over the years, as some Companies do not have activities and/or persons in their registered office and/or have registered offices that are not in operation, closed or terminated operations, which makes it impossible to serve a Statutory Demand Letter as per the requirements of the legislation.
However, there seems to a new stance seems to have been taken by the Supreme Court of Cyprus, in recent Civil Appeal No. 349/2014 – IN RE T.I.G. LIFESTYLE HOTELS LTD -v- Director of Social Insurance- dated 15th April 2022.
In the above-mentioned case, there was testimony that, the registered office of the Company was closed and not in operation. Additionally, there was testimony that the service took place not at the registered office of the Company but at a location where the Company had offices, activities and where its employees had been moved. The Statutory Demand Letter was served to the Director of the Company. The Court of first instance, considered such service as a good one, a point upheld by the Supreme Court, which after citing multiple authorities, mentioned the following:
“Applying these principles in the present case, I consider that the service was good as there was no other way. A different conclusion would lead to an irrational result, that the Company changes its place of operation and due to the fact that it does not update the Registry of the Registrar of Companies, it can never be served with a winding-up petition.”
The Supreme Court clarified that, where the provisions of the legislation can be followed, there is no room for any deviation from said provisions and service of the Statutory Demand Letter should take place at the registered office of the Company. However, after underlying the gap in the legislation in instances such as the above, the Court clarified that a service to an official of the Company may be possible if for practical reason, the service of the Statutory Demand Letter cannot be made in the registered office.
In this instance, the fact that there was testimony that the registered office was not in operation in that time period, and especially, the fact that the Company had indeed acquired knowledge of the demand, were the factors that deemed the service of the Statutory Demand Letter to be a legal and valid service of the document.
For any further guidance regarding this procedure or if you require an initial consultation, please do not hesitate to contact our Law Firm at [email protected], +357 22 251 777 or +357 25 261 777 or please visit our office in Nicosia or Limassol.