Although the Companies Act, 2008, makes provision for deregistration of a company, the definition of “company” expressly excludes an “external company”. This definition, therefore, denies external companies, which were registered in terms of the 1973 Companies Act a mechanism for deregistration with effect from the 1 May 2011.
This does not mean that a pre-existing external company ceases to exist. In terms of Item 2(6) of schedule 5 of the 2008 Act every pre-existing external company that was registered in terms of the 1973 Act is regarded as having been registered on the effective date as an external company in terms of the 2008 Act.
A company now includes, a juristic person incorporated in terms of the 2008 Act, a domesticated company, or juristic person that, immediately before the effective date of the 2008 Act, was registered in terms of the 1973 Act other than as an external company as defined in the 1973 Act. As a consequence, only those provisions of the 2008 Act which make specific reference to external companies apply to external companies. Section 82, which regulates deregistration of a company, therefore, does not apply to deregistration of external companies, because the section does not expressly provide that the provisions under the section apply to external companies (registered under the 1973 Act).
External companies are not, however, left without a remedy to this problem. The Companies Tribunal established by the 2008 Act facilitates alternative dispute resolution and reviews decisions of the Companies and Intellectual Property Commission (CIPC). According to Schedule 5, item 2 (5), if as a consequence of the coming into effect of the 2008 Act and the repeal of the 1973 Act, any conflict, dispute or doubt arises within two years, a company may apply to the Tribunal for directions. Upon receipt of an application, a member of the Tribunal is empowered to make an “administrative order that is appropriate and reasonable in the circumstances”.
Section 195(8), however, makes provision for an order of the Tribunal to be made an order of the high court. Should a Tribunal’s order be made an order of the high court, it would have the same binding or persuasive power that a high court’s order usually has. This does not necessarily mean that any other party, which is in similar circumstances of the applicant, would be exempt from applying to the Tribunal for a separate administrative order. It will depend on the terms of the relevant order of the Tribunal, which was made an order of the high court, whether it could be used by any other party.
An external company cannot attempt to short-circuit the process of deregistration by applying to CIPC with the hope that it would deregister it in terms of section 82. CIPC does not have the power to deregister the external company in terms of this section. If CIPC proceeds to deregister the external company in terms of section 82, it would be doing so in contravention of the 2008 Act and such deregistration would theoretically be without force. The deregistration of a pre-existing external company in terms of section 82, in the absence of an administrative order by the Tribunal directing that the procedure set out in section 82 be used to deregister the external company, would be invalid and the relevant external company would theoretically continue to exist as a registered external company.
Applying to the Tribunal for an administrative order is one remedy to the problem of there not being a prescribed procedure for deregistration of pre-existing external companies. Another possible remedy, although somewhat drastic, is the sequestration of the external company.
Item 9 of schedule 5 of the 2008 Act provides that chapter 14 of the 1973 Act will continue to apply to the winding up and liquidation of “companies” under “this” 2008 Act, as if the 1973 Act had not been repealed. However, although an external company falls within the definition of a “company” under the 1973 Act, a pre-existing external company does not fall within the definition of a “company” under the 2008 Act. The question is whether Chapter 14 remains applicable to pre-existing external companies.
In the recent case of Melville v Busane and another  1 All SA 675 (ECP), the Eastern Cape court considered whether a trust could be liquidated by application of item 9 of schedule 5, and in terms of chapter 14 of the 1973 Act. The court held that a trust does not fall within the definition of a “company” under the 2008 Act, as contemplated by item 9, and could therefore not be liquidated in terms of chapter 14 of the 1973 Act (through the application of item 9). The court held, furthermore, that the appropriate procedure would remain the sequestration of the trust, which is in terms of the Insolvency Act. This principle would also apply to a pre-existing external company, because that external company also does not fall within the definition of a “company” under the 2008 Act.
The Insolvency Act provides for the sequestration of an estate of a debtor. Section 2 of the Insolvency Act defines a “debtor” as “a person or a partnership, or the estate of a person or partnership, which is a debtor in the usual sense of the word, except a body corporate or a company or other association of persons which may be placed in liquidation under the laws relating to Companies”. A external company would therefore fall within the definition of a “debtor” in terms of the Insolvency Act and the remedy is sequestration under the Insolvency Act.
It will be interesting to see what solution CIPC and the Tribunal would recommend in relation to the problem that external companies are faced with regarding deregistration. It could not have been the intention of the legislature to deny external companies a mechanism for deregistration. Perhaps the new Act would be amended to resolve this issue. Alternatively, we would have to leave it in the hands of our courts to determine the intention of the legislature.
Lester Timothy – Associate: Cape Town
Ntombentsha Odolo - Candidate Attorney: Cape Town
[Supervised by John Gillmer – Director: Cape Town]
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