Deregistration & dissolution of companies
30/12/2002

Deregistration

Deregistration is the process whereby a formal end is put to a company which has in practice become defunct.

It is defined as the cancellation by the Registrar of the registration of a company's Memorandum and Articles [(Section 1(1) of the Companies Act] and in the case of an external company as the cancellation by the Registrar of the registration of its Memorandum.

Deregistration is to be distinguished from dissolution which takes place either after the winding-up of a company [in terms of Section 419] or when a court provides for the dissolution of the transferor company after a reconstruction or amalgamation [in terms of Section 313(1)(d)]. Dissolution will be discussed later.

Both deregistration and dissolution put an end to the corporate existence of a company, but the purposes and certain of their consequences are different.

Insofar as the Registrar is empowered to deregister companies on his own initiative, the purpose of deregistration is in part punitive (i.e. to give the Registrar an effective remedy against defaulting companies). The legislature's intention is not to punish anyone other than the company and the Companies Act affords other parties wide relief [see ex parte Stubbs 1982(1) SA 526(W)].

Deregistration takes place in terms of Section 73 of the Companies Act when the Registrar has a reasonable cause to believe that the company is not carrying business or is not in operation.

In terms of this section the Registrar must send (by certified post) a letter to the company enquiring whether it is carrying on business or is in operation. If within one month after sending the letter he does not receive any answer or receives an answer to the effect that the company is not carrying the business or in operation, he may publish in the Government Gazette a notice that, unless good cause is shown to the contrary, at the expiry of two months from the date of that notice, the company will be deregistered. The Registrar may, unless good cause to the contrary has been shown by the company, deregister the company at the end of the aforementioned period.

In terms of Section 73, the Registrar may also, unless good cause to the contrary has been shown, deregister a company upon receipt from the company of written statements signed by every director thereof to the effect that the company has ceased to carry on business and has no assets or liabilities.

The Registrar must give notice of his deregistration of the company in the Government Gazette and the date of the publication of such notice in the Government Gazette is deemed to be the date of deregistration.

Deregistration puts an end to the existence of the company. However, any debts due by a company which has been deregistered are not extinguished and are merely rendered unenforceable (and therefore deregistration does not detract from the liability of a surety for a debt of the company). In addition the liability of every director, officer and mentor of the company continues and may be enforced as if deregistration did not take place [see proviso to Section 73(5)]. All the other consequences of non-existence follow.

Kindly note that Section 27(1)(c) of the Trade Marks Act has application only in the case where a company has intentionally been dissolved or dissolved in circumstances where it can have no further right to continue existence. It does not apply where it was never the intention that the company's existence be terminated and deregistration was the result of inadvertence on its part [see Ex Parte Ziman 1970(1) SA 164(T)173].

The remedy of a person aggrieved by the deregistration (e.g. a creditor of the company) is to apply to court for its restoration to the Registrar.

Dissolution

As mentioned in paragraph 4 above, there are two kinds of dissolution:-

• dissolution of a company after it has been wound-up; and
• dissolution by the court of any transferor company after a reconstruction or amalgamation [in terms of Section 313(1)(d) of the Companies Act].

Winding-up or liquidation (the terms are used indiscriminately) is the process by which, prior to its dissolution, the management of a company's affairs is taken out of its directors hands, its assets are ascertained, realized and applied in payment of its creditors according to the order of preference and any residue distributed among its members according to their rights. The company's corporate existence is then put to an end by the formal process of dissolution (in terms of Section 419).

The Companies Act provides for two principal modes of winding-up:-

• winding-up by the court (or compulsory winding-up);
• voluntary winding-up.

The Companies Act specifically provides that any cession or assignment by a company of all its properties to trustees for the benefit of all its creditors is void [in terms of Section 340(3)]. Consequently there can be no winding-up outside of the Companies Act of the assets of companies to which the winding-up provisions of the Act are applicable.

Certain provisions of the Companies Act (for example Section 339) provide that insolvency law provisions shall also apply to the winding-up of a company which is unable to pay its debts. These provisions apply only once the company has been placed in liquidation [i.e. after the grant of the winding-up order, see Law Claims (Pty) Ltd v Rea Shipping Company SA 1979(4) SA745(N)].

A winding-up by the court is deemed to have commenced at the time when the application for the winding-up was presented to court (see Section 348), although this deeming provision comes into operation only once the winding-up order has been granted. Consequently, the provisions of the Companies Act that apply 'after the commencement of winding-up' to companies being wound-up and unable to pay their debts, apply retroactively.

The Companies Act provides that a voluntary winding-up commences at the date of the registration of the Special Resolution authorising the winding-up [in terms of Section 352]. Thus a voluntary winding-up commences when the Special Resolution for a company's winding-up takes effect [Section 203 provides that a Special Resolution may not take effect until it has been registered by the Registrar under Section 200]. From that time the company is 'being wound-up'.

While the company is being wound-up, the Registrar must alter the register to include in the name of the company the statement 'in liquidation' or 'in voluntary liquidation' [in terms of Section 49(7)].
In any winding-up, when the affairs of a company have been completely wound-up, the Master must transmit to the Registrar a certificate to that effect and send a copy of the certificate to the liquidator [in terms of Section 419(1)]. The Registrar must then record the dissolution of the company and publish a notice of its dissolution in the Government Gazette [in terms of Section 419(2)].

The relevant Master (in relation to a company in respect of which an application is made to court for a winding-up order) is the Master who has jurisdiction in the area of jurisdiction of the court where application is made [Section 1(1)].

The date of dissolution of a company is the date of recording of the dissolution by the Registrar [Section 419(3)]. In the case of any other body corporate, the certificate of the Master constitutes its dissolution [Section 419(4)].

Dissolution puts an end to the existence of a company [see Pieterse v Cramer 1977(1) SA598(A)].

Until final dissolution, a company being wound-up voluntarily remains a body corporate and retains all its powers as such [see Section 353(1)]. From the commencement of winding-up, it must, however, cease to carry on its business except insofar as may be required for its beneficial winding-up [Section 353(1)]. The business cannot be carried on with the view to its continuance or as if it were a going concern. The object with the carrying on of the business is usually the beneficial realisation of its assets and the division amongst creditors with all reasonable speed.

Deregistration of foreign company

In terms of Section 332 of the Companies Act, an external company which ceases to have a place of business in the Republic must forthwith notify the Registrar who may then deregister the external company. In addition, the Registrar may himself set steps in relation to have an external company deregistered when he has reasonable cause to believe that the company has ceased to have a place of business in the Republic. The steps to be followed by the Registrar are basically the same as those applicable to deregistration of a local company under Section 73 of the Act.