South Africa: Recent Developments In The De-Registration And Restoration Of Companies In Liquidation

Last Updated: 6 November 2013
Article by Edward Nathan Sonnenbergs

Most Read Contributor in South Africa, September 2018

In recent years, the Companies and Intellectual Properties Commission ("CIPC") (and its predecessor, the Companies and Intellectual Property Registration Office ("CIPRO")) has been carrying out mass de-registrations of companies and close corporations for failure to file their annual returns. This phenomenon, and its severe negative effects on third party creditors, has been the focus of much legal scholarship. However, a short while ago it came to our attention that CIPC's de-registration campaign also extends to companies that have been placed in liquidation. This is usually because CIPC is unaware that the company is being wound-up.  Under the Companies Act 61 of 1973 ("the old Companies Act"), the registrar of the court was obliged to forward a copy of the provisional order of winding-up to CIPRO.  However, as a matter of practice, this seldom occurred.  There is no corresponding provision in the Companies Act 71 of 2008 ("the new Companies Act").  As a consequence, CIPRO (now CIPC) was often unaware of a company's change in status post-liquidation.

When a company is de-registered, its corporate and legal personality ceases to exist and its corporeal and incorporeal assets are declared bona vacantia (effectively forfeited to the state).  Accordingly, claims against the company cannot be enforced and any action purportedly taken on behalf of the company is invalid and of no effect.  By extension, and in the context of liquidation, any actions taken by the liquidators in the administration of a de-registered company are also void. The consequences of this are far-reaching: for example, during the period of de-registration, any claims proven against the company, any meetings of creditors and members convened by the liquidators, any sale agreements concluded by the liquidators in respect of the company's property (and transfer of ownership pursuant thereto) and any litigation instituted or defended by the liquidators, is invalid and is not legally binding on third parties.

Prior to 1 May 2011, Sections 73(1) and (3) of the old Companies Act regulated the de-registration of companies on the grounds of, inter alia, failure to file annual returns. Once a company had been so de-registered, depending on the reasons for the restoration, application could be made for its re-registration either:

  1. to the Court in terms of section 73(6) of the old Companies Act "and thereupon the company shall be deemed to have continued in existence as if it had not been deregistered"; or
  2. by application to CIPRO (the body overseeing the regulation of companies prior to CIPC) in terms of section 73(6A) of the old Companies Act "and thereupon the company shall be deemed to have continued in existence as if it had not been deregistered".

In other words, under the old Companies Act, the restoration had retrospective effect and all actions taken by the company during the interim period were deemed to be valid.

Furthermore, the provisions of section 419 and 420 of the old Companies Act created a parallel and seperate process for de-registration of companies in liquidation, know as dissolution.

On 1 May 2011 the new Companies Act came into effect.  The first noteworthy point is that, contrary to the provisions of the old Companies Act, the administrative act of deregistration is now interchangeable and synonymous with the legal effects of dissolution.  If a company is deregistered/dissolved, the avenues available for the restoration of a company's registration under the new Companies Act include:

  1. applying to CIPC for the "reinstatement of the registration" of the company in terms of section 82(4) of the new Companies Act; or
  2. applying to court "for an order declaring the dissolution to have been void, or any order that is just and equitable in the circumstances" in terms of section 83(4) of the new Companies Act.

The main difference between restoration of registration under the new Companies Act and the old Companies Act, is that there is no express provision in the new Companies Act which deems the re-registration, either by CIPC or the court, to have retrospective effect.  Accordingly, the courts have been divided as to whether the new provisions do have retrospective effect and, if not, whether the court can use its power pursuant to section 83(4), to make any order that is "just and equitable in the circumstances", and to declare as valid the actions taken by the company during its period of de-registration.

On Tuesday, 22 October 2013, Binns-Ward J of the Western Cape High Court, Cape Town, handed down a definitive judgment on this point in the matter of Peninsula Eye Clinic (Pty) Ltd v Newlands Surgical & Others (case number 21325/11) which will have a significant impact on how the courts interpret sections 82(4) and 83(4) going forward.

In the decision of Peninsula Eye Clinic (Pty) Limited, the court held that in the case of re-registration by CIPC in terms of section 82(4), the effect thereof will be to automatically restore the company's corporate personality and its title to property. However, this restoration does not validate the actions purportedly taken on behalf of the company during the period in which it was de-registered.

A declaration by the court that the dissolution of the company was void in terms of section 83(4), without more, will also restore the company's corporate personality and title to property, without automatically validating any conduct which took place during de-registration.

The aforegoing notwithstanding, the court held that the remedy contemplated in section 83(4), to make any order that is just and equitable in the circumstances, is broad enough to afford the court the ability to, in addition to restoring the registration of the company, order that the restoration be retrospective in effect, whether generally or in respect of specific actions. It appears from the judgment that the extent to which the court will validate actions taken on behalf of the company will depend on the facts of the case and, inter alia, the prejudice suffered by third parties as a result of the validation.

In light of the above, we recommend that all liquidators and interested creditors ensure that provisional and final orders of liquidation, together with certificates of final appointment of liquidators, are sent to CIPC, as soon as is reasonably possible. CIPC will update its records to reflect the company as being "in liquidation" and accordingly will, as a general practice, refrain from placing the company in de-registration.

In addition, it is recommended that all liquidators and creditors who are currently involved in or have an interest in the affairs of a company in liquidation, promptly check said company's registration status. If the company is in the process of de-registration, CIPC must be approached as a matter of urgency to amend its records.  If the company is already de-registered, application will have to be made to CIPC or the Court for the restoration of the company's status. However, any actions purportedly taken on behalf of the company which took place in the period of de-registration will remain invalid and of no effect until such time as application is made to court for an order validating these activities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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