If, for whatever reason, the Companies and Intellectual Property Commission (CIPC) did not receive your company (or CC)’s annual return on due date, it will assume that the company is inactive and will start the deregistration process – the legal effect of which is that the company ceases to exist.
Deregistration is disastrous
That has serious consequences –
- Anything you do as a director is automatically void (putting both you personally and your company at significant risk), and
- All the company’s assets automatically become owned by the State.
Although CIPC says it will notify you before deregistration, clearly many companies are deregistered without their knowledge. Our courts have been faced with many disputes arising from such companies innocently continuing business when no one – neither the directors nor the third parties with whom they transacted – had the faintest clue that the company had in fact ceased to exist.
Reinstatement – the pitfalls
If it happens to you, apply for re-instatement of your company immediately. You are in for cost, hassle and delay. More seriously, you risk failure – for example interested third parties must be given the opportunity to object to the reinstatement (you have to advertise, giving 21 days’ notice of your application).
Is reinstatement retrospective? The SCA has spoken
Does a reinstatement order validate contracts, sales etc entered into by a deregistered company during its period of non-existence? It’s an important question, with for example directors risking personal liability for “corporate actions” whilst no company actually existed, innocent buyers of company assets at risk of losing them, etc. Until recently, conflicting High Court decisions led to much concern and confusion in this regard.
Fortunately the Supreme Court of Appeal (SCA) has now settled the matter – reinstatement is fully “retrospective”, the company’s actions during deregistration are automatically validated, and its assets automatically revest in it.
Inevitably though, trading in a non-existent company leaves a mess which may require more clean up than just simple reinstatement. For example if anyone has been prejudiced, you or an affected third party may have to apply for a special court order to remedy the situation.
Directors – your essential action list
Don’t risk all that uncertainty, delay and expense in the first place. You certainly don’t want to be trying to run your business in a non-existent company with the millstone of a prolonged and uncertain reinstatement application round your neck!
Do these two things now –
- Ensure that you have in place a rock-solid process for always lodging your annual returns with CIPC every time, on time; and
- Check that your company’s status is reflected by CIPC as “In Business” on www.cipc.co.za (use the “Name/Enterprise Search” section).
Read more: Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd (086/2014)  ZASCA 25