In January 2018 the District Court sentenced a company in liquidation that had once been Cyprus's biggest grocery retail company.(1) The sentence concerned the issuance of a cheque with insufficient funds.

Facts

Before entering into liquidation, the company had issued a cheque to one of its creditors, but had had insufficient funds to cover the amount therein. The creditor initiated criminal proceedings with the court's approval. Having found the company guilty, the court went on to assess the size of the fine to be imposed. As a start, the court considered the liquidation as a mitigating factor. However, by citing the British case of R v Balfour Beauty Rail Infrastructure Ltd, the court observed that the sentence should convey a message of deterrence, which should go beyond the company's board of directors and affect its members in a way that causes a sense of anxiety and acts as a deterrent.

Having observed that the principles regarding the order of payment of creditors of a company in liquidation are well known, the court stated that they were irrelevant and should not guide the court when deciding a criminal case. Hence, according to the court, the fact that the company was under liquidation did not negate the fact that a sentence should be proportionate to the offence and act as a deterrent. Further, the sentence should affect company contributors which, in turn, expect to receive any available amounts from the proceeds of the liquidation.

Finally, the court went on to examine the possibility of a compensation order against the company for the benefit of the complainant, even though this had not been requested. The principles regarding the order of payment of creditors are irrelevant in a criminal case, but – according to the court – could be of importance when examining the possibility of issuing a compensation order. Under the applicable legislation, the court was entitled to make such an order; however, given that the complainant was an unsecured creditor for the issued cheque, such order could alter the priority of payment towards unsecured creditors. For this reason, the court decided not to proceed with the compensation.

Comment

The above case is a useful illustration of how companies in liquidation should be treated when it comes to the imposition of fines which start with the company and go back to company contributors.

For further information on this topic please contact Natasa Aplikiotou at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (natasa.aplikiotou@gzg.com.cy). The George Z Georgiou & Associates LLC website can be accessed at www.gzg.com.cy.

Endnotes

(1) BTWOTEK LTD v Orphanides Public Co Ltd (Case 30767/2013).

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