The Companies and Intellectual Properties Commission (“CIPC”) has placed numerous companies and close corporations (“CCs”) in the process of deregistration for failing to file their annual returns on time, as is required by the Companies Act 71 of 2008 (the “Act”). According to the Act, if a company or CC, fails to file its annual return for two or more consecutive years; or if the CIPC has reasonable cause to believe that it is not carrying on business or is not in operation, it may be deregistered by the CIPC. The CIPC must notify the company or CC that it will be deregistered unless good cause is shown.

The Act was amended in 2022 to create a legal regime relating to the uncovering of beneficial ownership of an entity. Subsequently, the CIPC launched its Beneficial Ownership Register on 1 April 2023, allowing all corporate vehicles registered with the CIPC to file their beneficial ownership declarations. Similarly to the filling of a company or CC’s annual financial returns, beneficial ownership declarations and disclosures must be filed with CIPC within 30 days of the company or CC’s anniversary date. The CIPC has recently cautioned South African business owners that their companies may be unable to trade if they fail to meet the compliance requirements set by the CIPC specifically the registration of their beneficial ownership information by 30 November 2024 and may face deregistration.

The effect of deregistration is that a company or CC is deprived of its legal personality. All its property, movable or immovable, corporeal and incorporeal, passes into ownership of the state as bona vacantia [See Miller and Others v Nafcoc Investment Holdings Co Ltd and Others 2010 (6) SA390 (SCA)].

There is no provision made in the deregistration process to inform potential creditors of the pending deregistration. A debt due to a creditor of a company or CC that has been deregistered is not extinguished but rendered unenforceable against the corporation [Barclays National Bank Ltd v Traub; Barclays National Bank Ltd v Kalk 1981 (4) SA 291 (W) at 295D] and if a creditor of company or CC wishes to sell in execution any immovable property owned by the company or a CC that has been deregistered, the creditor will not be able to do so and will, in effect, lose its security. Further, any summons served on a company or a CC that has been deregistered cannot be enforced and similarly, a company or CC that has been deregistered cannot issue summons against a defaulting debtor.

However, Section 82(4) of the Act allows any interested person to apply in the prescribed manner and form to the CIPC to reinstate the company or CC. In Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd 2015 (4) SA 34 (SCA) the court held that the reinstatement in terms of section 82(4) has a complete retrospective effect which includes the validation of corporate activities during the period of deregistration.

The procedure to apply to the CIPC to reinstate a company or CC includes submitting the required forms and payment of all the outstanding annual returns as well as a restoration fee. Some of the required documentation for an application to reinstate a company or CC, include certified copies of identification documents of the directors/members, letters from National Treasury and Public Works, and an affidavit indicating the reasons for non-filing of annual returns. This make the process cumbersome, if not impossible, as such information is not readily available to creditors. 

Section 83(4) of the Act allows for a liquidator or other person with an interest in the company or CC to apply to a court for an order declaring the dissolution to have been void, or any other order that is just and equitable in the circumstances. Such an order also has a complete retrospective effect. [See, ABSA Bank Limited v The Companies and Intellectual Property Commission of SA 2013 (3) SA 34 (WCC) and the unreported case of Falk N.O. and Others v Rapitrade 659 (Pty) Ltd and Others (3519/2021) ZAWCHC 128].

Therefore, a creditor may apply to the CIPC for restoration in terms of section 82(4) or to the court in terms of section 83(4) of the Act. However, both these processes are expensive and cumbersome.

Lastly, the Act provides that deregistration does not affect the liability of any former director, shareholder (or member) or any other person for any act or omission before the company was deregistered. Thus, members or directors who knowingly are a party to reckless or fraudulent dealings of these legal entities may be held personally liable for debts of these legal entities even after deregistration. The Act further places an onerous duty on the directors or members of companies or CCs not to allow the deregistration of these entities whilst they are actively engaged in commercial dealings. This being said, the action of a member or director who allows the deregistration of its corporation or company, for whatsoever reason, while having full knowledge of outstanding debt to any third party, may amount to reckless or fraudulent behaviour and may lead to them being held personally liable for those debts.

It is extremely important for creditors of a company or CC that has been deregistered to seek expert legal advice to protect their interests. It is also equally important for directors or members of a company or CC that has been deregistered to obtain expert legal advice to safeguard against being held personally liable for outstanding debt of the entity.

At Cowan-Harper-Madikizela we are available to provide further advice on how the CIPC’s decision may affect your business.