'Legal minefield' for deregistered corporations
THE bulk of the nearly 1-million close corporations (CCs) that were deregistered after failing to file their annual returns to Cipro - the predecessor of the Companies and Intellectual Property Commission (CIPC) - have still not been restored on the database.
According to Alex Elliot, director at the law firm Eversheds, about 200000 are still trading, a situation that has far-reaching implications for their bankers, employees and creditors who are unable to take any legal action against them should they need to.
Mr Elliot said to take action against such a company, the bank, employee or creditor would have to approach the court to have the company restored at the CIPC first.
The effect on the affected companies was that their bank accounts could be frozen, while their registered names became available two months after deregistration.
Cipro alerted companies that it would start deregistrations in October 2009. The process was delayed until January 2010 and again to July 2010.
Mr Elliot said on Friday that the process had created a legal minefield. He also said most of the deregistrations had been done unlawfully as CC-owners were not given enough notice.
"Many of these deregistered entities do not even know about it, others know about it and just do not care and carry on trading as if nothing happened and others have taken a considered decision that it is not worth the cost or effort to restore themselves and carry on until something does go wrong."
However, Rory Voller, deputy commissioner at the CIPC, disputed this, saying there had been a transitional arrangement in the new Companies Act where the CIPC took over the obligations, pending matters and liabilities of Cipro.
He said there had been campaigns alerting companies to the legal requirement of filing annual returns and the consequence of not doing so. He said there was a restoration link on the CIPC website allowing a company to be restored within two to three days.
A company whose name had been reserved by another company after its deregistration has to go to court to have its name restored. This could cost anything between R10000 and R50000.
"Essentially the punishment for a company that had no change to its details or its directors, for not filing the annual return is death," Mr Voller said.
He said the CIPC reserved the names of the deregistered companies for a certain period, but these had to go back into the pool again.
Mr Elliot said that for a company to restore itself on the CIPC register, it had to pay R450 per outstanding return, as well as a fine of R150 for late filing.
If one assumed that most companies were two years in arrears and 200000 CC's were still trading, the revenue for the CIPC could be close to R2,5bn, he said.
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