Since 16 July 2010, the Companies and Intellectual Property Commission (“CIPC”), previously known as the Companies and Intellectual Property Registration Office (“CIPRO”) undertook an exercise to “clean up” the companies register, to prepare for the coming into operation of the new Companies Act, 2008. This process has involved placing hundreds of thousands of entities in the process of deregistration, or finalising the deregistration of entities that were already in the process of deregistration, due to their non-submission of annual returns to the CIPC. Up to now it has been said that over 900 000 entities have been dealt this blow.

The submission of annual returns is not a new concept for registered companies and close corporations. Since 2008 both types of entities have had to comply with the requirement to submit annual returns to the CIPC, in terms of the Companies Act, 1973, and the Companies Act, 2008, as well as the Close Corporation Act, 1984, Therefore, the submission of annual returns is, per se, public knowledge. It is also stated clearly in the provisions of these Acts that the CIPC may place an entity in the process of deregistration (and if necessary actually deregister the entity) for failure to comply with the obligation to submit annual returns to the CIPC.

The obligation to submit annual returns to the CIPC is not an elaborate scheme developed by the Government to illicit money from entities unnecessarily. It ensures not only that entities continue to keep their public records updated at the CIPC, but serves as a mechanism whereby the CIPC is notified and re-assured that those entities, who submit their annual returns, are actually active. In addition, by complying with the obligation to submit annual returns to the CIPC and paying the prescribed fees, provides additional funds for the various services that are offered by the Department of Trade and Industry to the public, at little or no cost. However, despite the statutory obligation to submit annual returns to the CIPC, or the benefits to doing so, many entities do not feel the need to comply and submit their annual returns to the CIPC.

As a consequence thereof, CIPRO undertook the exercise of “mass deregistration” of entities that have failed to submit their annual returns for some time, with the aim of “cleaning up the register”. Many of the entities that had been placed in the process of deregistration or have been finally deregistered, had not simply forgotten to submit their latest annual return, but had been in arrears for not doing so for at least two years (if not more).

It therefore stands to reason that if an entity has been deregistered by the CIPC for failure to submit their annual returns to the CIPC, and that the intention of this “mass deregistration” exercise was to clear the register of all the entities that are not active, that the entity would be removed from the register and that their name would become available for a third party to use.

Technically, this would be the case. However, these entities have remained on the register at the CIPC, and according to the officials at the CIPC, they will remain on the register indefinitely. The reason being that the CIPC did not follow the prescribed procedures, as set out in the relevant Acts, to deregister these entities, therefore they have been afforded an extended opportunity to apply for their restoration. Not only have these entities been granted an extended opportunity for restoration, but the procedure to be followed for their restoration has been made easier. Despite this, many entities have still not made use of this opportunity for restoration and are currently, unnecessarily, “blocking” the register, which contradicts the purpose of the CIPC undertaking this measure to clean up the register.

The question now is the following: what is the situation when a third party wishes to make use of a name that “belongs” to an entity that has been finally deregistered, due to its failure to submit their annual returns?

Although the “normal” procedure would be to remove the names and details of entities that have been finally deregistered, for whatever the reason, from the register, the CIPC has taken an “internal decision” to keep these entities on the register for an indefinite period of time. In other words, until further notice from the CIPC, they will remain on the register and their names will not be available for use. The simplified procedure for restoration of these entities has also therefore, effectively been put in place indefinitely and there is no time period within which entities must make use of this procedure for their restoration, before facing the prospect of being removed from the register.

Since 16 July 2010, the Legal Department at CIPC has taken the view that it would not be possible to obtain approval and reservation of the names of these entities, until a date so proclaimed by the Minister of Trade and Industry. However, in an article published on the Fin24 website, the CIPC’s chief of communication, Dr Elabie Conradie, was quoted as saying that the names of entities that have been deregistered due to their failure to submit their annual returns, will become available for use to the public after two months of the finalisation of the deregistration. When asked to provide clarity regarding her comments in the Fin24 article, Ms Conradie stated that an “internal decision” was taken not to allow the names of these entities to be available for use, at all. This “internal decision” was communicated to the public in a notice published by the CIPC on 12 May 2011. The notice is however, issued in terms of section 173(1) of the Companies Act, 1973, which was repealed on 1 May 2011 by the provisions of the new Companies Act, 2008. Whether this notice is of any effect is the subject of further debate. The publication thereof, by the CIPC however, leaves much doubt as to whether there will be any decision taken regarding the further use of the names of these entities by third parties.

Effectively this means that names of entities that have been finally deregistered for failure to submit their annual returns to the CIPC will not be available for use. It is also not practical to obtain consent to make use of the name, from an entity such as this, as the deregistration of the entity would make the consent so given, invalid. Therefore, it is not recommended that the use of the name of an entity that has been finally deregistered for failure to submit annual returns to the CIPC, be pursued, at least for the foreseeable future.

By Simonne Morley – Professional assistant, Commercial Department, Adams & Adams
Supervising Partner – Andre Visser, Partner and Head of the Commercial Department, Adams & Adams