Check your company’s registration status

5 April 2011

This article first appeared in The Times (Legal Times)

Companies and close corporations have been urged to submit their annual returns on time to avoid this fate. The current batch of companies and close corporations that has not complied with lodging annual returns was due to be placed into final deregistration with effect from 21 February 2011 but the deregistrations have been temporarily suspended to give corporations time to comply.

CIPRO is empowered to automatically deregister a company or close corporation for failure to submit annual returns for a period of more than six months, after written notice to that effect being delivered to the entity concerned. Although it is a requirement that notice is given, the notice does not always come to the attention of the relevant person for whatever reason.

Deregistration cancels the company’s registration. What this means is that the entity is deprived of corporate personality. This is bound to cause all sorts of problems. During deregistration the liabilities of a company to third parties and of third parties towards the company are not extinguished but are rendered unenforceable while a company is deregistered. However, the liability of every director, officer and member of the company continues and may be enforced as if deregistration did not take place. The directors and officers will be relieved from office and they will not have any power to act on behalf of a company which is not in existence.

If a close corporation is deregistered while having outstanding liabilities, the persons who are members at the time of the deregistration are jointly liable for such liabilities.

Employees will find that they have no employer as the legal consequence of deregistration for employees would be the termination of their employment with the company. Such termination would constitute a dismissal and employees would have the right to challenge their dismissal at the appropriate dispute resolution forum unless the directors, officers and members of the company agree to be substituted as the new employer to prevent any interruption of the employment relationship during the period of deregistration. In the event that directors, officers and members of the company refuse to provide such an undertaking in respect of continued employment, employees may pursue their dismissal disputes.

On deregistration the assets of the company, if there are no ascertainable claimants, become bona vacantia (asset without an owner) and vest in the state. If your company has cash in a bank account you may find that you are not able to access such money. If the company has a loan for which the directors stood surety the bank may either demand immediate repayment or exercise the surety. This means that the surety would become liable. Further, if a company is deregistered, it will lose its tax registration.

The remedy of a person aggrieved by the consequences of deregistration (e.g. a creditor) is to apply to court for the company’s restoration. The court has the power to order restoration of the registration of a company. Similarly, if a company has been deregistered for failure to lodge an annual return, CIPRO is empowered to restore the registration of the company on application, lodgement of the outstanding annual returns and payment of the prescribed fee and penalty. This process to restore registration through application to CIPRO can take seven weeks or more.

A company’s registration may be restored and thereafter the obligations towards that company will revive with retrospective effect. A restoration order validates retrospectively all acts done on behalf of the company since deregistration and the company is regarded as never having been deregistered. On restoration, the company’s rights and obligations prior to deregistration revive and property which was deemed to have vested in the state is treated as if it never so vested.

In order to utilise any assets or enforce and obligations of a company in deregistration, the registration first would need to be restored. Directors, executors and members of all corporations must check their registration status and take immediate remedial steps to restore their existence if necessary.

Norton Rose South Africa (incorporated as Deneys Reitz Inc) joined Norton Rose Group on 1 June 2011.