Personal liability as a member of a deregistered CC

A recent decision confirmed that members of a Close Corporation will be personally liable for the debts of the CC that remain unpaid at the time of deregistration of the CC: Edward Street Property Investments CC v Lambrechts and Others (3657/07) [2010] ZAWCHC 218 (1 December 2010)

Section 15A of the Close Corporations Act, 69 of 1984 and regulation 16A of the Close Corporations Administrative Regulations prescribe that all close corporations lodge and pay annual returns from 1 September 2008.
If a corporation fails to lodge its Annual Return and subsequently fails to pay the prescribed fee, additional fees will be levied. If after a reminder, the corporation still fails to lodge the return, the Registrar of Close Corporations will, after six months, institute deregistration proceedings against the corporation.
In 2010 more than 764 000 Companies and Close 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 should check whether their CC 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 above case, 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.

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