Deregistration at the CIPC of a company or CC is risky business. Highly risky to the remaining shareholders, creditors or other interested parties. A deregistration at CIPC and SARS needs to follow the required procedures but can be achieved reasonably easily, particularly if the company has no employees and is not registered for VAT.
Also, your fellow shareholder can easily drive the process without your knowledge, particularly if he/she has little regard for board/shareholder meetings and sound governance principles.
Application – deregistration at the CIPC
The FAQs published by CIPC outline the process to be followed. It is quite simple:
- A written request is done on company letterhead by an authorised representative;
- Certified ID
- Tax clearance information from SARS
- Statement to the effect that the company is not trading and has no assets. No mention is made of any liabilities, nor if the company is involved in any litigation proceedings.
Sections 82 and 83 of the Companies Act do not require that CIPC verifies the details provided.
Consequences – deregistration at the CIPC
Once a company is deregistered it loses its legal capacity and with immediate effect becomes dormant and/or inactive. Everything ends. Contacts are terminated. Relationships, including employment relationships, cease to exist. Litigation stops. The entity is wiped from existence. It can no longer litigate or be litigated against and all the assets of the company, if any, are declared bona vacantia i.e. are considered forfeited to the State.
In the case of litigation proceedings, the plaintiff is deprived of its ability to recover any losses arising from the litigation including legal costs incurred up to that stage. The plaintiff can no longer litigate against the deregistered company or claim relief from the company, without taking additional costly legal steps which may not bear fruit.
You need not apply to court to resurrect an entity. An interested party may apply to CIPC to restore the entity to the register. This has the effect of restoring to it the property that is vested in the state. However, it does not operate retrospectively per Section 82. The restoration takes place with effect from the date it is granted.
Restoration does not bring the contracts and other relationships that were terminated on deregistration, back to life. This can have serious consequences.
Alternatively, you can approach the court to declare the deregistration void or grant other equitable relief. This has not been done before to my knowledge and it will be interesting to see how our courts exercise this right. These orders will not be easy to obtain and will certainly be costly.
You can potentially hold such shareholder or director personally liable for reckless trading (in the instance where the company owed a liquid debt and they knowingly deregistered). This process however is also quite costly as it requires instituting fresh litigation proceedings against such a director(s).
Conclusion
The shareholders of every small to medium-sized company with potentially unscrupulous directors serving on its board, must stay vigilant and know who they are dealing with.
