In terms of section 82(3)(a)(i) of the Companies Act 71 of 2008 (the Act) the Companies and Intellectual Properties Commission (CIPC) can remove a company from the companies register if the has failed to file an annual return in terms of section 33 for two or more years in succession and has failed to give satisfactory reasons for the failure or to show satisfactory cause for the company to remain registered.

The effect of deregistration is that a company or close corporation (CC) is deprived of its legal existence. A company or a CC can therefore no longer trade in name of the company or CC and no longer has the capacity to enter into binding business transactions. The law no longer recognises the company or CC a legal person.

The question that often arises is that what happens to the assets of a deregistered company of CC. The assets (if any) of the company or  CC automatically passes to the State as bona vacantia.

In Barclays National Bank Ltd v Kalk 1981 (4) SA 291 (W)¹ the court held that a debt that is due to a creditor of a company or CC that has been deregistered is not extinguished, but unenforceable against the corporation.

Summons cannot be issues against a deregistered company and a deregistered company cannot issue summon against another person or entity.

Abovementioned can have dire consequences for any person or entity to which a debt is due by a company or CC which has been deregistered. There is no provision made in the Act to give potential creditors notice of the CIPC’s intention to deregister a company. It is therefore advisable for any person or company to ensure that the company or CC that they are dealing with is registered with the CIPC.

One option for a creditor is to apply to the CIPC for the restoration of the registration of the company. Section 82(4) of the Act reads as follows: “If the Commission deregisters a company as contemplated in subsection (3), any interested person may apply in the prescribed manner and form to the Commission, to reinstate the registration of the company.” In terms of the old companies act this application could be made to court. This “option” has been taken away by the new Act. This section of the act is also applicable for the reregistration of a CC.

On 23 October 2012 the CIPC issued a practice note² in which the requirements for re-instatement of a company or CC in term of the companies Act are set out. A few of the requirements are as follows:

1. letters from the National Treasury and the Department of Public Works indicating that they have no objection to the re-instatement if it has immovable property;
2. affidavit indicating the reason for the non-filing of annual returns, if deregistration was as result of non-compliance in relation to annual returns;
3. sufficient documentary proof that the company or CC was in business or that it had any outstanding assets and liabilities at the time of deregistration.
4. upon the successful processing of the re-instatement application all outstanding annual returns must be filed in order to complete the process.

The court in Peninsula Eye Clinic (Pty) Ltd v Newlands Surgical Clinic³ held that reinstatement under section 82(4) retrospectively re-established a company’s corporate personality and ownership of property, but did not validate its acts during the period of deregistration.

A creditor of the company or CC that has been deregistered will find it extremely difficult and costly (penalties will have to be paid for the late filing of the annual return) to re-instate a company or CC. Creditors in most instances will not be able to comply with above requirements as they simply will not be able to obtain the requested documents.

It can be said that the rights of creditors of companies that have been deregistered are being infringed. Creditors are not given any notification of the intention of the CIPC to deregister a company or a CC. This intention should first be advertised by the CIPC and creditors should have an opportunity to be heard. Furthermore the process for re-instatement should be modified to take their rights and their ability to access all of the required documentation ect. into consideration. It is unjust for the creditor of the deregistered company to be punished for the non-compliance by another.

We can only hope that a creditor will challenge this section of the Act and that the courts will rule that the legislature should step in and rectify the current positon. As it stands at the moment creditors don’t have much hope of recovering any of debt due to it by a deregistered company or CC.

Written by Anye Jansen van Rensburg, Schoeman Tshaka Attorneys (Cape Town)

Notes:

1 At 295D
2 Practice note 6 of 2012
3 2014 (1) SA 381 (WCC)