It frequently occurs that a practitioner is confronted with a situation where a Company or Close Corporation is deregistered or dissolved and removed from the register. This causes major problems, from a conveyancing perspective, should such Company or Close Corporation be the owner of immovable property, be a bondholder or the holder of a real right in immovable property, and an act of registration must be affected in respect of such property.
From the outset one must clearly distinguish between deregistration and dissolution, as there is a clear distinction between the two, which is not always clear from the legislation.
While both have the effect of terminating the legal existence of a company or Close Corporation, their purpose and some of their consequences are different. Upon the dissolution of a Company the liability of its directors, officers and members ceases, whereas this is not the case with deregistration. Furthermore, the effect of declaring a dissolution void is not retrospective, but when the registration of a deregistered Company is restored, the Company’s rights and obligations, prior to deregistration, revive and the order declaring the deregistration void operates retrospectively. This was specifically spelled out in section 73(6) of the Companies Act 61 of 1973. No similar provision is contained in the new Companies Act 71 of 2008.
DEREGISTRATION OF COMPANIES AND CLOSE CORPORATIONS
In addition to the duty to deregister a Company, the Companies Commission (CIPC) may otherwise remove a company from the companies register in the following circumstances:
- Where the company has transferred its registration to a foreign jurisdiction in terms of section 82(5).
-
Where the Company has failed to file an annual return in terms of section 33 for two or more years in succession and the company, on demand by the Companies Commission has failed to:
- give satisfactory reasons for the failure to file the required annual returns, or
- show satisfactory cause for the company to remain registered, or
- Where the Companies Commission (CIPC) has determined that the company appears to have been inactive for at least seven years and no person has demonstrated a reasonable interest in or reason for its continued existence, or
-
Where the Companies Commission (CIPC) has received a request in the prescribed manner and form and has determined that the company:
- has ceased to carry on business, and
- has no assets, or because of the inadequacy of its assets, there is no reasonable probability of the company being liquidated.
If the Companies Commission (CIPC) deregisters a company, any interested person may apply in the prescribed manner to the commission to reinstate the registration of company. The court also has the power to restore the company’s registration.
EFFECT OF DEREGISTRATION ON CONVEYANCING TRANSACTIONS
It is incumbent on the conveyancer to determine whether the Company or Close Corporation has been deregistered or not. Should it be found that it has been deregistered, such Company or Close Corporation must firstly apply for reinstating of the registration. This can be effected in the form of an application or by order of court, before any transaction can be proceeded with, in respect of assets registered in its name.
The effect of deregistration is that a Company or Close Corporation is deprived of its legal existence. A Company or a Close Corporation can therefore no longer trade in name of the Company or Close Corporation and no longer has the capacity to enter into binding business transactions. The law no longer recognizes the Company or Close Corporation a legal person.
The question begging an answer is that what happens to the assets of a deregistered Company or Close Corporation. The assets (if any) of the Company or Close Corporation automatically passes to the State as bona vacantia.
In Barclays National Bank Ltd v Kalk 1981(4) SA 291 (W) the court held that a debt that is due to a creditor of Company or Close Corporation that has been deregistered is not extinguished, but unenforceable.
Summons cannot be issues against a deregistered Company and a deregistered Company cannot issue summons 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 Close Corporation 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 Close Corporation 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 deregistration of a Close Corporation.
In terms of Practice Note 6 of 2012, issued by CIPS, the requirements for re-instatement of a Company or Close Corporation in terms of the Companies Act are as follows:
- 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. However, presently it is not necessary to submit the "no objection" letter from National Treasury where the Company or Close Corporation is the registered owner of immovable property. The letter of "no objection" from public works will still be a requirement where the Company or Close Corporation is the owner of immovable property registered in any of the ten deeds registries;
- Affidavit indicating the reason for the non-filing of annual returns, if deregistration was as a result of non-compliance in relation to annual returns;
- Sufficient documentary proof that the Company or Close Corporation was in business or that it had any outstanding assets and liabilities at the time of deregistration;
- 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 Clinic 3 2014 (1) SA 381 (WCC) held that re-instatement 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 Close Corporation 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 Close Corporation. 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 notifications of the intention of the CIPC to deregister a Company or a Close Corporation. 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 etc. into consideration. It is unjust for the creditor of the deregistered Company to be punished for the non-compliance by another.
It is hoped 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 position. As it stands at the moment creditors do not have much hope of recovering any debt due to it by a deregistered Company or Close Corporation.
EFFECT OF DISSOLUTION OF A COMPANY OR CLOSE CORPORATION ON CONVEYANCING TRANSACTIONS
In 1964 at the Annual Conference of Registrars were confronted with the following scenario:
“Where a company has been struck off the roll, can a messenger or sheriff give transfer to a purchase at a sale in execution of property registered in the company’s name? Attention is invited to the decided case SA Permanent Building Society v Levy 1959 1 SA 228 T, which declared that the sheriff, for instance, acts as a statutory agent on behalf of the judgment debtor.”
The Registrars resolved that where a company has been dissolved after having been wound up, it can be restored to the register of companies within two years of dissolution (see RCR 23 of 1964).
- At any time after a company has been dissolved:
- The liquidator of the company, or other person with an interest in the company, may apply to a High court for an order declaring the dissolution to have been void, or any other order that is just and equitable in the circumstances; and
If the court declares the dissolution to have been void, any proceedings may be taken against the company as might have been taken if the company had not been dissolved.
The court thus has the power upon application by the liquidator or other interested party to set aside a dissolution in terms of a voiding order. The purpose of setting aside a dissolution is usually to complete unfinished business or to rectify an oversight in relation to a winding‑up, such as the distribution of one or more of the Company’s assets that had been overlooked in the final process. Note that in these circumstances the institution of proceedings against the company can proceed as if the company had not been dissolved.
However, where assets of a company are not transferred prior to its final dissolution and no application as referred to supra, is bought, such assets accrue to the State as bona vacantia without further ado (see Rainbow Diamonds (Edms) Bpk en Andere v Suid‑Afrikaanse Nasionale Lewensassuransiemaatskappy 1984 (3) SA 1 (A)). Although the aforesaid case referred to movable assets, the same principle applies to immovable property (see Ex parte The Government 1914 TPD 596). In the latter case the court had to decide about a farm which was registered in the name of a company which had been dissolved. It was held that the State is entitled to property to which no one else can establish a title or is likely to establish a title.
The question petitioning for an answer is who can deal with the movable or immovable property that has been declared bona vacantia, for example where a company has been finally dissolved and it is found that the said company is a bondholder of a bond registered over land, or that immovable property belonging to the dissolved company must be transferred to someone who is lawfully entitled to it. The judge in the Rainbow‑case held that the Treasury has the power to waive the right of the State in favour of the rightful claimant, and thus has the power to consent to the cancellation of the bond or the transfer of the immovable property into the name of the person(s) entitled thereto.
In the recent case of G Walker Engineering CC t/a Atlantic Steam Services v First Garment Rental (Pty) Ltd (2011 (5) SA 14 (WCC)) [2011] ZAWCHC 261 the judge stated as follows:
“[6] It seems to me, with respect, that the learned judge in Broughton overlooked the effect of the proprietary consequences of a company’s deregistration. The effect of the deregistration of a company is that all its property, including any claims (Afr. ‘Vorderingsregte’) it might have against third parties, thereupon vest in the state as bona vacantia (see Rainbow Diamonds Edms Bpk en Andere v Suid-Afrikaanse Nasionale Lewensassuransie maatskappy [1984] ZASCA 41, 1984(3) SA 1(A) at 10C-12G). Thus, without any need for an act of cession or anything of the like, the state has the right, should it so decide, to prosecute the action against the defendant.”
The Rainbow Diamonds – case was based on the Exchequer Act, 1975, the relevant provisions which have survived in the Public Finance Management Act, 1999 (“PFMA”). Regulation 10.3.1 of the Treasury Regulations issued in terms of the PFMA states that where any money, property or right accrues to the state by operation of law (bona vacantia), the relevant treasury may exercise all powers, authority and prerogatives, and fulfill any obligations on behalf of the state.
