From time to time, companies in business come in to contact with deregistered entities; most often due to administrative oversight and their failure to file annual returns. Companies would be well advised to practice diligence and ensure that the companies they are dealing with are registered entities.

The deregistration of companies and close corporations is provided for by Sections 82 and 83 of Companies Act 71 of 2008 (“the Act”). Essentially, the Companies and Intellectual Property Commission (“CIPC”) will deregister a company (including a close corporation for the purposes of the Act) in any one of the following circumstances:

  • The Master of the High Court has filed a certificate of winding up (i.e. when a company has been liquidated);
  • The company has transferred its registration to a foreign jurisdiction;
  • The company has failed to file annual returns for two or more years in succession and has failed, on demand by the Commission, to show why the returns weren’t filed and why the company should not be deregistered;
  • The company has been inactive for a period of seven or more years; and
  • The company has ceased to carry on business and has inadequate assets to liquidate.

 

Effect of Deregistration

CIPC deregisters companies by removing their names from the Register of Companies. Once an entity is deregistered, it ceases to exist as a separate legal person.

As a result of the company ceasing to exist, all assets and property of the company, automatically and by operation of the law, are deemed to be bona vacantia (Latin, ownerless goods) and are vested in the State.

Directors, shareholders and members should be warned that deregistration does not affect their liability in respect of acts or omissions that took place before the company was removed from the register.

Where the company has outstanding debts, the debts are not extinguished by deregistration; the debts are, however, unenforceable against the company for such time as the company remains deregistered. A summons issued against a deregistered company is deemed a nullity; this can be particularly problematic when prescription of the debt owed by the deregistered company is considered.

It is submitted that the proper course of action in this regard, is for creditors to make application for reregistration before enforcing the debts against the company.

The situation regarding close corporations which are deregistered is different in that their members remain jointly and severally liable for the liabilities of the close corporation and creditors are able to bring claims directly against the members.

Effect of Reregistration

The effect of the reregistration of the company is that all of its assets and property are revested in the company.

Until the Supreme Court of Appeal provided clarity in the matter between Newlands Surgical Clinic v Peninsula Eye Clinic (086/2014) [2015] ZASCA 25, it was thought that a court application to reregister should be preferred in that it would allow for specific declaratory orders regarding the actions of the company while it was deregistered.

In overruling the decision of the Western Cape High Court on this aspect, the Court stated, unequivocally, that reregistration in terms of Section 82(4) of the Act “has automatic retrospective effect, not only in revesting the company with its property but also in validating its corporate activities during the period of its deregistration”.

It is therefore a choice open to interested parties of the companies whether to reregister by way a court application or on application to CIPC in terms of Section 82(4) of the Act.