[Question] Company in process of deregistration - implication

[dellatjie]

Good day,

I just want to know what the implications are if a company is to be deregistered by CIPC?

I have a case of a new client whose entity shows that it is in the process of deregistration on CIPC's website..

[CLIVE-TRIANGLE]

You can halt the process by submitting the outstanding annual returns.

The implications of final deregistration are that the company ceases to exist. The jury is out as to the enforceability of liabilities and so on.

It is a pain to reinstate the company- this is what you would need to do - so I would far rather suggest doing the annual returns.

[Greig Whitton]

I'm pretty sure a company's liabilities (or those of its directors) can still be enforced, even if the company is de-registered.

Things get more interesting if a de-registered company is owed money. There was a fascinating Eastern Cape High Court case last year that involved almost this exact scenario, except it was a Close Corporation instead of a company.

In that particular case, the CC issued a summons for a debt while it was still de-registered and then re-registered to have the debt enforced. Ultimately, the Court found in favour of the CC and ruled that the summons had interrupted the prescription period for the debt even though the close corporation had been de-registered at the time (although the new Companies Act has since repealed the provisions in the Close Corporations Act that led to this bizarre scenario).

[CLIVE-TRIANGLE]

According to attorney Francois van Wyk, this is the position (and partly explains why permission for reinstatement must be sought from the state)

1. Under certain circumstances, a company or close corporation may be deregistered. This may happen either at the instance of the entity involved, or at the instance of CIPCOM.

2. The effect of deregistration is that the entity’s existence as a legal person comes to an end, and all its assets (if any) automatically passes to the State as bona vacantia.

3. The liabilities of the deregistered entity are, however, not extinguished at its deregistration – they are merely rendered unenforceable while the deregistration subsists.

4. The deregistration can be reversed upon application, inter alia, of any creditor of the deregistered entity.

5. Any liability, if any, of a director, officer or member of a deregistered entity may however still be enforced as if the deregistration had not occurred. In this regard, Section 83 (2) and (3) of the new Companies Act provides as follows:


"(2) The removal of a company’s name from the companies register does not affect the liability of any former director or shareholder of the company or any other person in respect of any act or omission that took place before the company was removed from the register.

(3) Any liability contemplated in subsection (2) continues and may be enforced as if the company had not been removed from the register."


6. The position was essentially the same under the old Companies Act.

7. This position, however, only applies to personal liability that existed upon deregistration, and it should be noted that a director, officer or member is not automatically by virtue of the deregistration rendered personally liable for all unsettled liabilities of the deregistered entity.

8. Section 26 of the Close Corporations Act, since 1 May 2011 (being the date on which the new Companies Act took effect), now provides essentially the same as regards the personal liability of former members of a deregistered close corporation.

9. With close corporations, the position was however different prior to 1 May 2011. Until the substitution of the former Section 26 of the Close Corporations Act with the new Section 26, subsection (5) thereof provided as follows:

"(5)If a corporation is deregistered while having outstanding liabilities, the persons who are members of such corporation at the time of deregistration shall be jointly and severally responsible for such liabilities."


This obviously no longer applies since 1 May 2011.



Francois van Wyk