11 Sep 2013

Beware of Deregistration

Practice Area(s): Corporate & Commercial |

In a recent judgment of the Western Cape High Court (Bright Bay Property Service (Pty) Ltd v Moravian Church in South Africa, 2013 (3) SA 78 (WCC)), the Court made it clear that if a company is deregistered and then re-registered under the Companies Act, 71 of 2008 ("the 2008 Act") the re-registration is not retrospective and the company's conduct during the period that it was deregistered cannot be retrospectively validated. 

The facts of the case are as follows: In 2006, Bright Bay Property Services (Pty) Ltd ("Bright Bay") and the Moravian Church in South Africa ("the Church") entered into an agreement in terms of which Bright Bay was allowed to conduct mining activities on the Church's land, and the Church undertook to take all steps necessary in order for Bright Bay to obtain the necessary permits to do so.  Bright Bay commenced mining activities in 2007.  In 2011, the Church discovered that the property needed to be rezoned to permit mining activities. In August 2011, the Church brought an interdict preventing Bright Bay from continuing its mining activities.

In the midst of this, Bright Bay was deregistered in July 2010 for failing to file its annual returns.  This deregistration was in terms of the Companies Act, 61 of 1973 ("the 1973 Act").  In January 2011, Bright Bay applied to be re-registered. The new Companies Act, 71 of 2008 ("the 2008 Act") took effect in May 2011 and Bright Bay was only re-registered in February 2012. 

In October 2011, while it was deregistered, Bright Bay sent the Church a notice of demand requiring it to give Bright Bay a power of attorney to enable Bright Bay to sort out the rezoning issue.  the Church ignored this demand and Bright Bay consequently brought an application to compel the Church to comply with the agreement and to take all steps necessary in order for Bright Bay to obtain the necessary permits to conduct its mining activities.

The Church opposed the application on the basis that Bright Bay's deregistration caused its mining permit to lapse, which in turn triggered a resolutive condition in the agreement, thereby terminating the agreement from the outset.

The court had to determine 2 main issues:

  • which Act governed the re-registration of Bright Bay; and
  • what was the status of Bright Bay's activities during the period between deregistration and re-registration?

Section 73(6A) of the 1973 Act provides that upon re-registration "a company shall be deemed to have continued in existence as if it had not been deregistered" (our emphasis).  Section 82(4) of the 2008 Act also provides for reinstatement but it does not contain the same deeming provision as that in s 73(6A) of the 1973 Act.

The Court concluded that:

  • the 2008 Act governed Bright Bay's re-registration because the 2008 Act had repealed section 76(6A) of the 1973 Act;
  • there was no deeming provision in section 82(4) of the 2008 Act which was similar to 73(6A) of the 1973 Act which meant that the legislature intended to exclude retrospective reinstatement; and
  • because the Bright Bay's re-registration was in terms of the 2008 Act and was therefore not retrospective, any action taken by it "during the period of deregistration would be of no legal force or effect due to the fact that the applicant [Bright Bay] lacked corporate personality".

This judgment has serious implications for those companies that have inadvertently been deregistered, for example, due to failing to file company returns.  According to the Court, this mean that until the Company is re-registered, all its actions will be of no force and effect.