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De-registration of HOAs

6 October 2016

Introduction
The aim of this article is to explain the consequences of the de-registration of Home Owners’ Associations in the Companies Office, and the actions necessary to bring such entities out of de-registration and restore their registration status.

Does this affect all Home Owners’ Associations?
No. This is only applicable to Home Owners’ Associations that are registered as companies with the Companies Office (CIPC). Home Owners’ Associations that are voluntary in nature and are not registered with CIPC will not be affected by the de-registration process described in this article. Thus, for the purposes of this article, a reference to a Home Owners’ Association refers to a registered company as such, and not to a common law association of persons, despite the reference herein to an “association”.

When does de-registration occur?
There are a number of things that can result in de-registration. The most common is a failure on behalf of a Home Owners’ Association to pay amounts owed for annual returns to CIPC for two consecutive years. Another common reason for de-registration is that the Registrar of the Companies Office sends a letter to the Home Owners’ Association asking it to confirm whether it is indeed still actively trading, and in the absence of a response, the Registrar deregisters the Home Owners’ Association. Other reasons for de-registration might include voluntary de-registration – which would have to be initiated by the Home Owners’ Association itself – or liquidation – which would typically occur when a creditor of a Home Owners’ Association has taken judgement against the company and is liquidating it in order to satisfy amounts owed to it.

The consequences of de-registration
Once a Home Owners’ Association is deregistered with CIPC it no longer has any legal status as it has ceased to exist. Thereafter, all acts of the association are legally invalid, and likewise any actions taken by the Directors thereof are invalid.

Historically, under the old Companies Act, this was not necessarily a problem because when you brought the application for re-instatement of the Association, the Association was deemed to have been re-instated from the date of de-registration, therein ratifying all actions taken during the period of de-registration. The Companies Act 2008, however, is a different kettle of fish - as there is no longer any similar deeming provision. The result of this is that at present the only way to ratify (retrospectively validate) the actions taken by the board of Directors of the Association during the de-registration period, is to bring a high court application, on notice to all affected parties, requesting that such actions be condoned.

There are thus all sorts of complications that would arise if a Home Owners’ Association found itself in this position, which is why it is advised that Home Owners’ Associations should make all efforts to ensure that they are not placed in this precarious position.

Practical impact of de-registration
If a Home Owners’ Association were deregistered it would mean that, for example, any invoices issued by it to its members for payment of any amounts owed (levies and ancillary charges, for example) would essentially be invalid. Non-payment of these invoices could result in the association not being legally entitled to take any action to recover the amounts outstanding. De-registration would also preclude a Home Owner’s Association from issuing a lawful and valid levy clearance certificate. In such a situation it would not be lawfully possible for the Directors or other members to do anything for or on behalf of the association, and any meetings or resolutions taken by any relevant parties would be invalid. The Association would thus not be lawfully capable of entering into contracts with third parties for any reason whatsoever. This situation would apply until it was restored in the Companies Office. In addition, restoration would not necessarily result in the actions taken during the de-registration period being validated, as a separate High Court application would be required for this. In addition, whilst a company is deregistered, its assets are forfeited to the state, meaning that the Directors and members have no control over them whatsoever.

Restoring a deregistered company
Should a company fail to pay its annual returns to CIPC for a period of 2 consecutive years, the company will be placed in the “de-registration process”. At this time the CIPC is obliged to send the company a notice stating that it has been placed in the de-registration process. Should you see this status on a CIPC or Windeed report, or receive the aforesaid notice, you are advised to immediately contact your attorney or company secretary to have your outstanding annual returns filed. As soon as the outstanding annual returns are filed, the company will immediately be afforded the status “in business” with no further delay or cost.

If the company has been in de-registration process for a period of 20 days or more from the date of receipt of the de-registration process notice, and the company has failed to respond or file its outstanding annual returns, CIPC will then place the company into the status “de-registration final”. Unfortunately, the process of re-instating a company in this status is not so simple, and a number of regulatory requirements need to be met. These include obtaining the consent from the National Treasury and the Department of Public Works, and publishing a notice that advertises the fact that you are making application to the CIPC to re-instate the company, which notice must lie for at least 21 days. The process is not quick, and can only be completed in 2 to 3 months. This is a conservative estimate and applies if you have instructed a suitably qualified practitioner to assist you with the aforesaid re-instatement application.

Conclusion
It is very important that a suitably experienced practitioner be appointed when assisting with the re-instatement of a company, as lack of experience may well result in the re-instatement process taking up to 6 months or longer. However, it is best for the Home Owners’ Association to be vigilant and ensure that its annual returns are filed every year on the anniversary of its incorporation. This will avoid the legal consequences, the inconvenience, and the wasted costs incurred when it is necessary to restore a deregistered Home Owners’ Association.

Chantelle Gladwin, Partner and Christopher Tucker, Senior Associate
Schindlers

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