FAILURE TO SUBMIT ANNUAL RETURNS LEADS TO DEREGISTRATION OF COMPANIES AND CLOSE CORPORATIONS
“Directors should ensure that this requirement is met to avoid undue delays in closing transactions,” advised Lischa Gerstle, Director at pan-African corporate law firm Bowman Gilfillan.
“The Act requires every company to submit an annual return, together with its financial statements, to the CIPC within 30 business days of the anniversary date of its incorporation date. Failure to do so over a period of two consecutive years permits the CIPC to deregister the company, thus terminating its legal existence.”
While having a status of “deregistered”, the company has no legal capacity to transact. An interested person of the company, including a third party who has a direct or indirect financial interest in the business, can apply to the CIPC to have the company re-instated.
This process can take a few months and requires co-operation from both the Department of Works and the National Treasury, as any assets (including immovable property) of the deregistered company are forfeited to the state as bona vacantia assets at the time of deregistration. Substantially the same provisions apply to close corporations under the Close Corporations Act, 1984.
According to Ms Gerstle: “The Act also provides that the removal of the company’s name from the companies register does not affect the liability of any former director or shareholder of the deregistered company in respect of any act or omission that took place before deregistration. These liabilities continue and may be enforced as if the company had not been deregistered.
“If re-instated, the company’s legal existence is revived and any rights and obligations that existed immediately prior to the deregistration are re-instated.”
By way of practical example, assume a company that is used as an investment vehicle owns preference shares worth a few hundred million rand and its shareholders decide as part of a structured financing transaction to advance additional funds to the investment company to allow it to subscribe for additional preference shares.
If the investment company has been deregistered due to a failure of its directors to submit two successive annual returns to the CIPC, the CIPC may deregister the company with the consequence that the existing preference shares become bona vacanita and the company cannot proceed with the proposed financing transaction until it has been re-instated by the CIPC, resulting in substantial delays in closing the transaction in question.