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(1984)1984 May 3 [A. Loizou, SAVVIDES, PIKIS, JJ.] IN THE MATTER OF THE COMPANIES LAW, CAP.
  1. K.M.C. MOTORS LIMITED, Appellants-Respondents, v. JOREPHANCO TRADING AND CONTRACTING COMPANY, Petitioner. (Civil Appeal No. 6634). Company—Winding-up petition—Disputing validity of—Rules appli­ cable are the Civil ProcedureRules and not the Bankruptcy Rules. The respondent in this appeal a trading and contracting com­ pany of ΑΙ-Khobar, Saudi Arabia, filed a petition for the wind­ ing upof the appellant Companyonthegrouid that theCompany was unable to pay its debts to the respondent. The petition was served on 22.9.1983 and was fixed on 20.
  3. On 3.10.1983 the appellant filed an application praying for the dismissal and/or striking out of the petition as being in substance and in form contrary to law. As there was a dispute between the parties whether the petition of the respondent or the application of the appellant to strike out thepetition, was to be heard first, the trial Court after hearing argument on this issue, held that the Bankruptcy Rule?* were more or less related totheCompanies winding-up Rules and were applicable; and applying the Bankruptcy Rules il concluded to hear the petition first and made directions for it? advertisment. Rule 92 of the Companies (Winding-up) Rules, 1933 provides r.s follows: "Where noprovision is madeinthese Rules regarding any mailer arising out of winding-up proceedings, the Rules of Court governing Civil Proceedings (including theBankruptcy Rules) shall, so far as they arc not repugnant to these Rules, apply to such matter". 390 1 C.L.R. K.M.C. Motors v. Jorephanco Trading Upon appeal by the 5 10 15 20 Company: Held, that bearing in mind the difference in tlie procedure contemplated in the Bankruptcy Lav, Cap.5 and the Companies Law, Cap. 113,thefact that whilst under theBankruptcyLaw thedebtor hasa right to dispute thevalidity of a bankruptcy notice which isa prerequisite under section 3
(1)(h) for anact of bankruptcy to take place enabling the creditor to present a bankruptcy petition, whereas no such opportunity is given to thedebtor under theCompanies Law, this Court isinclined tothe viewthat the remedies whichare availabletoa defendant contesting theissue of service ofawrit of summons underthe Civil Procedure Rules, may beutilised ifone wishes to dispute the validity ofawinding-up petition inthecircumstances ofa case like the present one;that the determination of the legal points raised as to the validity of the winding-up petition, if dealt with preliminary tothehearing ofthe winding-up petition by means of theapplication of the appellants would clearthe groundforthe determination ofthepetition and anyembarrassment or prejudice totheappellant, with likely irreparableconsequences, maybe avoided; and that, therefore, the rulingof the trial Court must besetaside, andthecase will beremitted back forthehearing firstof appellant's application for striking out the petition. Appeal allowed. 25 Cases referred to: Karaoglanian & SonsLtd.v. Karaoglanian and Another
(1976)12 J.S.C 1875 Appeal. Appeal byrespondent against the ruling ofthe District Court 30 of Nicosia (Kourris, P.D.C. andS. Nicolaides, D.J.)dated the 19th November, 1983 (Company Appl. No. 163/83) whereby it was decided that thepetition forthe winding-up of the petitioner company should be heard before the application for stiiking out the petition. 35 L. Papaphilippou, for the appellants. A. DikigoropoulloSy for the respondent. A. Loizou J.: The judgment oftheCourt will be delivered by Mr Justice Savvides. 391 K.M.C. Motors v. Jorephanco Trading
(1984)SAVVIDES J.: The respondent in this appeal, a Trading and Contracting Company of ΑΙ-Khobar, Saudi Arabia, filed on the 20th September, 1983 a petition for the winding-up of the appellant company on the giound that such company was indebted to the petitioner in the sum of U.S. dollars 74,375, 5 plus interest at 9 per cent per annum as from 15.3.1983 and that the company had neglected to pay or satisfy the said sum in whole or in part or to make any offer to the petitioner to secure or compound the sum to the reasonable satisfaction of the petitioner. The petition was supported by an affidavit sworn 10 by Tawfiq Hassan Jorephami, the president of the respondent company, on 16.9.1983. The petition was served on 22.9.1983.and was fixed on 20. 10.1983. On.3.10.1983 the appellant filed an application pray­ ing for the dismissal and/or striking out of the petition as being 15 •in substance and in form contrary, to law on the following grounds of law: (
  1. a)The petitioner had no right to initiate such proceedings in Cyprus, in that being either a firm or partnership, had not registered in Cyprus and did not carry busi- 20 ness in Cyprus under the business name mentioned in the petition. (
  2. b)The affidavit of the president of the ptiitioner was sworn four days before the filing of the petition. As there was a dispute between the parties whether thepetition of the respondent or the application of the appellant to strike out the petition, was to be heard first, the trial Court after hearing aigument on this issue, concluded as follows: 25 "We have consideied carefully the arguments of counsel appearing for both parties: We think that the Bankruptcy .30 Rules are more or less related to the Companies Windingup Rules and we propose to have lesort to them. According to the Bankruptcy Rules a debtoi should file an opposition against the petition; it does not state that he should take any steps prior to his opposition. We 35 are not inclined to accept the view of Mr. Papaphilippou that if the respondent files an opposition will lose his right to set aside the petition as having taken a step in the proceedings. The respondent can raise any point hewishes in his opposition to the petition. 40 392 I C.L.R. KIM.C. Motors r. Jorephanco Trading Sawides J.. For,these reasons we have reached the conclusion to h s a r the petition first. As the petition was filed on the 20th September, 1983, and no opposition was filed, in=v;ew of. the respondents* application, ws propose to accede to the invitation of counsel for the petitioner and give the appror priate directions as to the advertisement of the petition 5. In the circumstances the petition is fixed for hearing on 12.12.1983 at 10.00 a.m. Opposition to be: filed within 15 days. Petitioner to publish notice of this pelition in the official Gazette and ih one Greek daily newspaper:showing'the date and'time of hearing'at least seven days prior' to the date of hearing". 10» The appellant, as a result, filed the present appeal challenging, the validity of such ruling, on the following grounds: 15; " 1 . The trial Court was wrong to ignore that the Civil P r o cedure Rules apply by virtue of rule 92 of the Companies (Winding-up)* Rules and its^ruling that the Bankruptcy Rules are more'or loss related to.the Companies Winding-up- Rults is-wrong in law. 20 2. The trial Court was wrong in law to apply the Bankruptcy Rules instead of the Civil Procedure Rules. 3. The trial· Court was wrong to hold' that an oppositiom on the merits"of the Petition was not a fresh step therein. 4. The trial Court was wiong not t o deal with,and dispose. of Appellant's interim application for irregularities on its merits". 25 At the hearing of the appeal counsel for appellant contended that the preliminary legal objections touching the validity of the petition raised by the application to strike out the petition, 30' should have been deteimined first, in accordance with the Civil. Procedure Rules which, are the rules applicable in the present case. The application filed· on behalf o f the appellant was necessary in the circumstances of the case as, otherwise, if the appellant had failed to take such step and opposed the petir 35' tion, such action on his part would have amounted to the taking of a fresh step in the proceedings amounting t o an unconditional 393 Sawides J. K.M.C. Motors v. Jorephanco Trading
(1984)appearance and, consequently, he would have been deprived of the right to contest the validity of the petition. He submitted that the trial Court was wrong in his conclusion that the Bankruptcy Rulesaremoreor lessrelated to the Companies Winding-up Rules and he submitted that the proper rules 5 applicable are the Civil Procedure Rules. He further added that by the ruling of the trial Court for the publication of the petitionintheofficial Gazetteofthe Republicand in oneGreek daily newspaper, the commercial reputation of the appellant will be at stake and even if successful in the end, the financial 10 credibility ofthe Company would beseriously affected, asother creditors of the Company who do not wish at present to press their claims against the appellant, will come into the picture and will have to pursue their claims against it, by a petition which is in substance and in form contrary to the law for the 15 reasons stated inhisapplication and, whichisnot entertainable by the Court under Order 48(
  1. a)rule 1 of the English Rules oftheSupreme Court, 1960. Hemade reference inthis respect to thenotes in the Annual Practice of 1960at page 1150under the heading, "Foreign Firms" to the effect that a partneiship 20 firm which has no place of business in England within the meaning of the words "carrying on business within the jurisdiction" cannot sue or be sued in thefirm'sname and that thepartnersmust sueorbesuedindividuallyintheir ownnames and served as ordinary defendants. 25 Counsel for the respondent, on the other hand, submitted that Order 48(a), rule 1 of the English R.S.C. on which the application wasbased and onwhichcounselfor appellant ielied in hisargument, is not applicable asin viewoftheexpressprovision in rule 92 of the Companies Winding-up Rules the En- 30 glish Rules have no application in winding-up proceedings under our Law. He also added that the trial Court was right in concluding that the Bankruptcy Rules are the Rules more or less related to the Winding-up Rules, and there is express provison in rules 59, 60 and 63 of the Bankruptcy Rules that 35 where a debtor intends to show cause against the petition he may raise the matter which he intends to dispute in a notice to befiledbefore the hearing and such matter is taken up by the Court at the hearing of the petition. Therefore, counsel concluded byraisingthismatter inthe opposition tothepetition 40 394 1 C.L.R. K.M.C. Morors v. Jorephanco Trading Sawides J. it will not amount to a new step taken in the proceedings depriving the defendant from disputing the validity of the issue of the winding-up petition. Rule 92 of the Companies (Winding-
  2. up)Rules, 1933, lays 5 down that— 10 "Where no provision is made in these Rules regarding any matter arising out of winding-up pioceedings, thi Rules of Court governing Civil Proceedings (including the Bankruptcy Rules) shall, so far as they are not repugnant to these Rules, apply to such matter". Before embarking on the question as to whether the Civil Procedure Rules or the Bankruptcy Rules aie the more appropriate, we find it necessary to consider certain provisions in the Companies Law, Cap. 113, and the Bankruptcy Law, Cap. 15 5 as to the commencement of the proceedings for the winding up of a company or for declaring somebody as bankrupt. Under the Companies Law, the cases in which a company may be wound up by the Court, are set out in section 211, para. (
  3. e)of which provides that one of such cases is when a company 20 is unable to pay its debts. Under section 212 a company shall be deemed to be unable to pay its debts if, in circumstances similar tothose inthe present case,it isproved to the satisfaction of the Court that the Company is unable to pay its debts, and in determining whether a company is unable to pay its debts, 25 the Court shall lake into account the contingent and prospective liabilities of the company. Upon the occurrence of such event, a petition for winding-up may be presented to the Court and in accordance with the provisions of section 218 "the windingup of a company by the Court shall be deemed to commence 30 at the time of the presentation of the petition for the windingup". Under the Bankruptcy Law, Cap. 5, section 3
(1), an act of bankruptcy has to take place before a bankruptcy petition may be presented by a creditor. The acts of bankruptcy are enu35 merated in sub-section
(1)of section 3 and in circumstances corresponding to those of the present case a bankruptcy notice 395 Sawides J. K.M.C. Motors v. Jorephanco Trading
(1984)has to be served first and the act of bankruptcy is committed if theie is failuie to.comply with such notice. Section.3(l)(h), provides as follows in this respect: "Ifbeingindebtedto acreditor in virtueofadebt provable in bankruptcy, he fails to pay, or secure, or compound, 5 for, such debt, within such time as shall be allowed by an order made by the Court upon the application of the creditor, provided always no such application shall be enteitained by the Court, unless a bankruptcy notice, requiring payment ofsuch debt,hasfirstbeenserved upon him, and 10 he has had'notice of such application and has been called upon to show cause against the same". The validity ofsuch bankruptcy noticecanbedisputed bythe. debtor, by giving a notice ofhisintention todispute same,and* only if he fails to give such notice or fails to comply with the 15 contents,thereof, within the time allowed, he commits an act of bankruptcy (section 3(
  1. b)of the Law) entitling the cieditor topresentabankiuptcy petitionagainstthedebtorundersection 5(l)(
  2. c)of the Law. So, whereas under the provisions of the Bankruptcy Law the 20 validityofabankruptcynoticemaybedisputedbefore thebankruptcy proceedings commence, no similar provision exists in the Companies Law·entitling the debtor to take any steps to prevent the creditor from presenting a winding-up petition. Such right, however, maybefound intheCivil Procedure Rules 25 under which in any civil proceedings the party against whom such proceedings are taken, may upon service upon him of the writ of summons, before entering appearance or upon entering a conditional appearance, movethe Court to set asidethe issue or service of the summons upon him. 30 In the present case the trial Court found that the Bankruptcy Rulesaremore or lessapplicable and madethedirections challenged by this appeal. There is no doubt that as a result of such directions and in particular the part concerning the pubUcation ofthewinding-up petition inthepiesstheappellant 35 will be highly prejudiced and itsfinancialcredibility will be at stake in viewofthefact that other creditors whohad noreason to dispute the financial position of the appellant would start 396 Ι ί'.' .V. K.M.C. Motor}, \. Jorephanco Trading Sawides J. doubting it, and would have to take steps for securing their •claims, something which they would not have otherwise done iif there was no winding-up petition. 5 .0 We ugrce with the opinion expressed by a membei of this Bench (Pikis% J.) as a President of the District Court of Larnaca . tin a Full District Court case {Karaoglanian & Sons Ltd. v.Kara­ oglanian & Another
(1976).12 J.S.C. 1875 at pp. 1880, 1881) as to the consequences flowing from the presentation of a wind­ ing-up petition and in particular the effect of publication which is "meant to advertise the fact of the presentation of the petition in as wide a chcle as possible so as to give notice to any likely interested party while at the same time the public, by receiving such notice, may adjust its dealings with the company accord­ ingly". 15 The 'prerequisite Ά ι\ publication of a notice in a newspaper •is one contemplated by the English Companies Winding-up Rules which have no application in Cyprus in this respect, as no such provision -exists undci our law oi the Winding-up Rules. Though such matter is a matter .relevant to the service 20 •of the'petition on all interested parties and in Cypius it is within the discretion of the Couit whether such 'notice should be published in thenewspaper or not,the publication of such notice is normally ordered by the Court as a matter of usual practice. We find nothing in iule 92 of the Companies Winding-up Rules tending to establish that the Bankruptcy Rules should be preferred tothe Civil ProccdmeRules. If such was theintention we sec no reason why any reference to the Civil Procedure Rules should have been made 'first in rule 92 instead of reference .to the Bankruptcy Rules with a proviso that the Civil Procedure 30 'Rules would come into play if there was no provision in the Bankruptcy Rules. 25 35 Bearing in mind the difference in the procedure contemplated in the Bankruptcy Law, Cap. 5 and the Companies Law, Cap. 113, the fact that whilst under the Bankruptcy Law the debtor has a-right to dispute the validity of a bankruptcy notice which is a prerequisite under section 3(l)(
  1. h)for an act of bankruptcy to take place enabling tin. creditor to present a bankruptcy petition, wheicas no such opportunity is given to the debtor undci the Companies Law, we are inclined to the view that the 397 Sawides J. K.M.C. Motors \. Jorephanco Trading (U".
  2. i)remedies which are available to a defendant contcsiing iliu issue of service of a writ of summons under the Civil Procedure Rules, may be utilised if one wishes to dispute the validity of a winding-up petition in the circumstances οΐ a case like the present one. The determination of the legal points raised as to the validity of the winding-up petition, if dealt with pre­ liminary to the hearing of the winding-up peiition by means of the application of the appellants would clear the grcun.d for the determination of the petition and any embarrassment or prejudice to the appellant, with likely irreparable conse­ quence, may be avoided. For all the above reasons we have decided to sci asioV the ruling of the trial Court and w. remit the case back for she hearing first of appellant's application for striking out th<· peti­ tion. As to the costs of this appeal, we aie of the opinion that such costs should be costs in cause in the main piocccdings and an order is made accordingly. Appeal allowed. 398

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