Over 750 000 Companies and Close Corporations Deregistered
Both the Companies Act and the Close Corporation Act have provisions in them allowing CIPRO to deregister corporate entities that have not lodged annual returns with the Registrar (Section 73 of the Companies Act and Section 26 of the Close Corporations Act).
CIPRO earlier in the year started to invoke the provisions of these Sections and hundreds of thousands of corporate entities were reclassified with the status “deregistration in progress”, for not having lodged the relevant returns.
In the last couple of days, what was thought to be a CIPRO threat for the delinquent corporate entities to get their returns in, has now become a reality when it is now believed that over 750 000 companies and close corporations have been finally deregistered.
The legal consequences of this action is immense, particularly for creditors and others contracting and doing business with these deregistered entities. These entities in law no longer exist and there are other consequences that flow from this, which are different for companies and close corporations.
For companies, to quote from Henochsberg on the Companies Act, “…it puts to an end the existence of the company. Its corporate personality ends in the same way that a natural person ceases to exist on death. Furthermore, all property, movable and immovable, corporeal and incorporeal, passes automatically (ie without any necessity for delivery or any order of Court) into ownership of the State as bona vacantia .” (Volume at page 139)
There is an additional consequence that is only applicable to close corporations where the provisions of Section 26(5) apply, which provides that, “If a close corporation is deregistered while having outstanding liabilities, the persons who are members of such corporation at the time of the deregistration shall be jointly liable for such liabilities.”
However there are provisions in both Acts allowing for the restoring of the registration by way of application to CIPRO, by an interested person, provided the returns have been lodged. In the case of companies this same relief can be obtained by way of court application.
The problem is for creditors and other parties doing business with such deregistered entities. These are the real innocent victims of CIPRO’s action. Contracts and debts are now unenforceable against these entities. Any debts due by a company which has been deregistered are not extinguished and are merely rendered unenforceable (and therefore deregistration does not detract from the liability of a surety for a debt of the company) .Yes in the case of close corporations you can now sue the members personally but that could result in wasted legal costs, should they later successful apply to restore the registration of the close corporation.
All creditors should immediately be checking the legal status of their debtors on the CIPRO website. In the event that they have any debtors that are deregistered they should cease all further credit and obtain immediate legal advice on the matter.