27/02/2017

Deregistering a company without fully understanding the legal consequences may land its directors and shareholders in a sticky situation.

Voluntary deregistration of a company may occur for a number of reasons but before the deregistration process of a company is started there are a number of things to consider.

•        Is the company acting in multiple capacities; for example is the company acting as a trustee of a trust as well as running a business?
•        Whether the requirements for a voluntary deregistration set out in section 601AA of the Corporations Act 2001 (Cth) are met including:

o    all shareholders of the company agree to the deregistration;
o    the company is not carrying on a business;
o    the company’s assets are less than $1000;
o    the company is not a party to any legal proceedings;
o    all fees and penalties under the Corporations Act have been paid by the company;
o    the company has no outstanding liabilities.

•        Whether the company is a party to any document or transaction that has not yet been completed.

If the shareholders and directors of a company jump the gun with the deregistration process without careful consideration then they may create a domino effect of issues for themselves including:

1.    assets held in the company’s name such as real property, shares, managed investment funds and bank accounts being stuck in ‘limbo’ because the directors cannot sign any transfer documents on behalf of a company that does not exist

2.    a new trustee of a trust cannot be appointed because the retiring trustee company (who has the power to appoint a new trustee) ceases to exist

3.    if the company owns a business name, the inability to transfer the business name to a new holder or the purchaser of its business.

So, is it possible to re-register a company or how can you fix issues relating to a deregistered company?

The answer is yes, it is possible to reinstate the company but certain criteria must be met and explanations to ASIC must be provided.  Alternatively, a court application can be made to order ASIC to reinstate the company.  With these two processes, the applications are costly, time consuming and there is no guarantee that your application will be approved by ASIC or the court.

Once a company is deregistered any property held in the company’s name vests in ASIC or where the property is being held by the company in its capacity as trustee of trust, the trust property vests in the Commonwealth (where ASIC can exercise some powers in relation to the property on behalf of the Commonwealth).

As a last resort, an application may be made to ASIC to execute any relevant transfer documents to vest the property in, as an example, the new trustee of the trust.  However, prior to making this application any alternative methods should be exhausted.  This application process also involves a fee, putting together a number of supporting documents and a risk that the application may not be accepted by ASIC.

Before all the dominoes fall down and the directors and shareholders are left with significant legal consequences to fix as a result of deregistration it’s important to make sure that all directors and shareholders of a company are not only familiar with all the company’s affairs but have certainty that all the company’s affairs have been dealt with.  

In relation to transfers of real property this not only includes signing the transfer document but ensuring the company waits until the transfer is successfully registered with the local land titles office before starting the process of deregistration.

Once deregistered the number of hurdles a company needs to go through to seek re-registration or alternatively arrange for the transfer of assets held by the company will end up costing the directors/shareholders money, time and a lot of paperwork!

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.