Oversea company guilty of failing to submit full accounts under Cyprus Companies Law s.350.

[*76] 1984 June 15

(HADJIHAMBIS,D.J.)

IN THE DISTRICT COUR OF LIMASSOL

Registrar of Companies

v.

E.W. SAYBOLT & CO. S. A.

Accused.

(Case No. 1039/84).

Companies - Oversea company registered in Cyprus - The Companies Law, Cap. 113, section 350 - The obligation of the oversea company thereunder to “make out a balance sheet and profit and loss account” - The obligation is not limited to the accounts of the company’s branch in Cyprus, but it extends to accounts for the entire company — Whether different interpretation justified on account of the fact that the company is not obliged under the law of the country of its incorporation to submit accounts or on account of the fact that the company has many branches throughout the world - Questions answered in the negative - Observations by the Court regarding need to amend the law for the purpose of adapting it to modern conditions.

Th. Constantinides, for the Prosecution.

Ch. Georghiades for the Accused Company.

JUDGMENT

The following judgment was delivered by:-

HADJIHAMBIS, D.J. : This case raises a short legal [*77] point, which, however, is of considerable practical significance, as I understand, in the circumstances of modern conditions of business relating to oversea companies.

The Accused is an oversea company registered in Cyprus charged under s.350 of the Companies Law, Cap. 113, which provides:

“Every oversea company shall, in every calendar year, make out a balance sheet and profit and loss account and, if the company is a holding company, group accounts, in such form, and containing such particulars and including such documents, as under the provisions “of this Law (subject, however, to any prescribed exceptions) it would, if it had been a company within the meaning of this Law, have been required to make out and lay before the company in general meeting, and deliver copies of those documents to the registrar of “companies:”

The documents and particulars that a company would have been required to make out and lay before the company in general meeting and deliver copies thereof to the registrar are covered by s. 121(1) of the Law under which the Accused is also charged which requires a written copy of every balance sheet and a copy of the report of the auditors and of the report of the directors accompanying each such balance sheet.

The Prosecution produced but one witness, Chrystalla Panayiotou, who stated that she is attached to the Oversea Companies Section of the Office of the Official Receiver and [*78] and Registrar and that the company is an oversea company registered in Cyprus, this registration having been effected on the 18th June 1979. The company, the witness said, has not submitted any balance sheet and profit and loss accounts for the years 1980, 1981 and 1982 in relation to which the Accused faces the present charge under three counts. The witness did state in cross-examination that the company has submitted branch accounts of its Cyprus branch for the years 1980, 1981 and 1982 but that these branch accounts were not considered sufficient by the Registrar for the purposes of the Law. The company, the witness also said, sent a letter to the Registrar dated 11th February 1984, which the witness produced as Exhibit I, and in which the company states a number of circumstances believed to be pertinent to the question. I need not of course say that this letter forms evidence before the Court not for the truth of the facts stated in the letter but for the fact of being a letter sent to the Registrar which includes those matters.

The letter states, and this has in fact been the argument of learned counsel for the company, that:

“We have already in the past pointed out to you, both in connection with this company and some other offshore branches, that some of them are registered in countries in which Accounts are not required to be prepared or filed. This is the case of our above clients, which is a Panamanian Company…….. The said company is operating and has offices all over [*79] the world, as it appears from the enclosed photocopy of their letter-heading. ..... The said company has established their Cyprus branch as their Middle East headquarters and it is impossible to expect them, because they have established in Cyprus an offshore branch, that the whole company on a worldwide scale should prepare audited Accounts just for the purpose of the branch filing them in Cyprus What the company is ready to do and has already done, is to prepare and have audited Accounts for its Cyprus branch business, draft copies of which, which have already been submitted to the Auditors for auditing, are enclosed for your information. They cover the period since 18th June 1979 and up to 30th June 1983.... It is definitely oppressive, impracticable and impossible for this international company to be required and compelled to prepare Accounts for the whole company to be filed for the purpose of the branch in Cyprus .... It is, therefore, obvious that at a certain time the amendment of the relevant provisions of our Companies Law has to be considered because, obviously, at the time such provisions were enacted there was never in the mind of the legislators the possibility of Cyprus being used as a basis for offshore activities with a definite Government policy to encourage such activities. “Therefore, an amendment is required which may take the form of providing that in the case of offshore branches the obligation to submit Accounts should be restricted [*80] to the submission of Accounts which are required to be submitted in accordance with the law of their country of incorporation. If these laws do not provide for the submission of Accounts, then Accounts should not be submitted except Accounts relating to the offshore branch itself.”

I should, of course, point out that I have no evidence before me relating to the facts alleged in this letter in relation to the company but I do not consider that important as the argument on those facts has wider implications. In any case, concluding the evidence of the Prosecuting witness, I should point out that the witness did say that according to investigations carried out the company is registered in Panama though the witness was not in a position to say what the company’s obligations under Panamanian Law are in relation to the submission of accounts.

There was no evidence on the part of the defence. Learned counsel for the company chose to rest his case on a legal basis which is the short legal point to which I referred at the beginning of my judment.

It is the argument of the prosecution that according to s.350 an oversea company registered in Cyprus is under an obligation to submit balance sheet and profit and loss accounts and that the company is not exempted under s.350 from that obligation merely because it is an oversea company which may not be under an obligation to submit such accounts in its country of incorporation or because it has [*81] branches throughout the world which may make it difficult, impracticable or even impossible for the company to submit such accounts.

Learned counsel for the company argued that the Companies Law was based on the earlier Companies Act 1948 which came into force in Cyprus at the time when the concept of oversea offshore companies was not in existence and submitted that an oversea company registered in Cyprus should be considered, giving an extended construction to s.350 in the spirit of these developments in the companies sphere, to be under an obligation to submit accounts not for the whole of its operations throughout the world but only in relation to its branch in Cyprus.

Neither learned counsel for the prosecution nor learned counsel for the defence were able to find any authorities on this point and my own researches have been equally fruitless in that respect. It should, in the first place, be pointed out that s. 350 upon its literal construction leaves no room for the approach suggested by learned counsel for the company in that it refer to:

“Every oversea company shall, in every calendar year, make out a balance sheet and profit and loss account.........”

I should further point out that s.

350 makes only one specific exception to its general provision in the proviso of sub-section (1) which reads as follows:-[*82]

“Provided that a company registered under the law relating to companies for the time being in force in Great Britain need not comply, with the foregoing provisions of this subsection if there is delivered to the registrar a certificate signed by a director and by the secretary of the company that such company is at the date of the certificate, an exempt private company”.

It could well be argued that the specific and singular exemption thus created by the proviso of s. 350(1) indicates that the legislature intended to extend the operation of s. 350(1) to other cases including that of an oversea company registered in Cyprus, all the more so when I consider that an oversea company registered in Cyprus was envisaged by the Companies Law in that s.346 of the Companies Law refers specifically to oversea companies establishing business within Cyprus. Furthermore, as learned counsel for the company himself argued, in the United Kingdom legislation has introduced special provisions for oversea companies registered in England through the Overseas Companies (Accounts) (Modifications and Exemptions) Order 1982 giving power to the Secretary of State to modify the ordinary accounting requirements in relation to oversea companies or exempt them therefrom completely. On this basis the need for special legislation modifying or excluding the obligation to submit accounts in relation to oversea companies registered in England would indicate that in the absence of such legislation no room for such excemption or modification would exist in the present law itself. [*83]

I would be the last to deny the force of the argument of learned counsel for the company, as further stated in Exhibit I, to which I have referred, stating in effect a case for oversea companies registered in Cyprus being exempted from the obligation to submit accounts and being subjected to an obligation to submit either branch accounts or accounts as required under the law of their country of incorporation. Commercial developments in relation to oversea companies and particularly offshore companies and further in relation to the multinational activities of modern companies, have led to a drastic and unforeseeable re-organisation of business in relation to which the law cannot afford to lag behind. All the more so when, as learned counsel for the company pointed out, it is desirable that such activities should be encouraged and it is the policy of the Republic to encourage such oversea companies establishing a place of business in Cyprus. I further appreciate the fact that to expect an oversea company registered in Cyprus to submit accounts for the entire company which may have branches throughout the world and which may even not be under an obligation to submit such accounts in its country of incorporation would be definitely impracticable and perhaps oppressive if not practically impossible, not to mention the consequences in the sphere of financial repercussions as a result of the reaction of oversea companies to legislation that places them in such difficult position.

I cannot, however, escape the view that there are two different things before me in this connection. Even [*84] reading s.350 with all these modern developments in mind and well aware that a provision must be construed in such a manner as to be sensible, stll I cannot escape the conclusion that s. 350 is absolute in its effect and includes in its operation oversea companies registered in Cyprus which may have branches throughout the world so that the obligation to submit accounts for the entire company extends to such oversea companies, and I find it impossible to read the section in a way that would limit such obligation to branch accounts only. The words of the section are clear and unambiguous and leave no room for any other than their literal construction, particularly bearing in mind the fact that the only companies exempted are those specifically exempted under the proviso. I find nothing in either s. 1 21 or in s. 346 to modify the view I take of s. 350; on the contrary, I believe that s. 346, as I said earlier, would fortify this view of s. 350. S. 350 further makes a specific reference to a holding company which has the obligation to submit group accounts; although this is not the case here it indicates the wide operation that s. 350 was intended to have and in any case there is nothing to limit the wide operation otherwise possessed by s. 350.

The second question, however, and one which although not falling for consideration in this case, not being within my jurisdiction, I should nevertheless like to comment on, is the consequence of having an all - embrasing provision of this kind in our law in the face of modern developments. Although I do not believe that such developments should [*85] affect my reading and construction of s.350 and that they do not in particular bear on the question of its generality, nevertheless it seems that the law lags badly behind modern developments in this area. The life-spirit of the law is its ability to adapt itself to modern conditions whether in the social or in the commercial sphere, and the looser is the law if the law fails to keep in touch with these realities, with consequences of wider social and economic significance. I should point out that in England it has been found necessary, though only recently, to amend the relevant legislation by introducing provisions enabling the exemption of oversea companies registered in England from the obligation to submit accounts or limiting their obligation in that respect according to the requirements of their own law I should not merely consider it advisable but pressing for such legislation to be introduced in Cyprus if the policy of encouraging oversea companies and particularly oversea offshore companies to establish a place of business in Cyprus is to be furthered.

On the construction which I place upon s.350 and on the evidence before me I find that the prosecution has proved its case against the accused beyond any doubt and I accordingly find the accused guilty as charged on each of the three counts. The company, being an oversea company registered in Cyprus, has failed to submit the accounts referred to in s.121 for the years 1980,1981 and 1982 and is accordingly in breach of its obligations under s.350(1) which is rendered an offence under s.353 under which the company is also charged. [*86]

Court:-

If there is anything you wish to add.

Mr. Constantinides:-

There are £8.40 costs.

Court:-

I take that what you want to state in relation to the company was contained in the letter Exhibit I, the company operating throughout the world and its difficulties of submitting accounts for the whole of its operations, stands in mitigation.

Mr.Georghiades:-

Yes, your honour.

Court:

I believe that there are very considerable mitigating circumstances in this case in view of what I have already stressed in relation to the practical difficulties of an oversea company registered in Cyprus which operates throughout the world for submitting accounts for the whole of its operations throughout the world and in particular in relation to this company. Furthermore, I take into consideration the fact that the company has in any case submitted branch accounts for its Cyprus operations.

I shall impose a fine of £10 on each count plus £8.40 costs.

Accused to -pay £10. - fine on each Count with £8.40 costs.