Although not strictly property law related, a recent court case draws attention to one of the consequences of the deregistration of a Close Corporation. In 2010 more than 764 000 Companies and Close Corporations (Corporations) that failed to meet the requirement for the submission of annual returns were deregistered by CIPRO (in some cases unbeknown to the members and shareholders).
Legally a Corporation ceases to exist on deregistration and the consequences of deregistration are accordingly immense. Members and shareholders should accordingly check whether their CC or Company has, perhaps unbeknown to them, been deregistered. Apart from all the normal problems associated with the deregistration of Corporations, in the case of a CC there is an additional problem for the members in that Section 26(5) of the Close Corporations Act provides that:
“If a Corporation is deregistered while having outstanding liabilities, the persons who are members at the time of deregistration shall be jointly and severally liable for such liabilities.”
In the recent court case the facts were, very briefly, that a CC which traded as a restaurant entered into a lease agreement with the owners of a building. When the rental due was not paid the owners of the building obtained a judgment against the CC for the amount of the rental owing. When the CC failed to pay this amount the owner sued the members of the CC in their personal capacity. At the time the CC had been deregistered and the court held that the members of the CC were liable to make payment of the outstanding rental to the owners of the building.
If you are a member of a CC which has been deregistered it is important to be aware of the fact that you are liable for all debts of the CC which existed at the time of deregistration.