When a company fails to submit its annual returns for two consecutive years, the Companies and Intellectual Property Commission (CIPC) initiates an ‘Annual Return Deregistration’ process. This means the company is in the process of being deregistered due to non-compliance. However, if the business owner wishes to formally wind up the company through a ‘Voluntary Liquidation’ instead, they must follow a specific process to transition from deregistration to liquidation.
Understanding the Difference
- Annual Return Deregistration: This is an administrative deregistration initiated by CIPC due to the non-submission of annual returns, leading to the company being removed from the register.
- Voluntary Liquidation: This is a formal process undertaken by shareholders or directors to wind up a solvent or insolvent company in compliance with legal requirements.
Steps to Convert Deregistration to Voluntary Liquidation
1. Restore the Company to Active Status
Before a company can be liquidated, it must be in an active status. If the company is already in the ‘Final Deregistration’ phase, the owner must first apply for restoration. Here’s how:
- Submit a CoR40.5 application to CIPC, requesting the company’s restoration.
- Pay outstanding annual returns and associated penalties.
- Provide a letter of motivation explaining the reason for restoration.
- Obtain a Tax Clearance Certificate from SARS (if required by CIPC).
Once CIPC processes and approves the application, the company will be reinstated to an active state.
2. Apply for Voluntary Liquidation
Once the company is active, the voluntary liquidation process can proceed:
- Board/Shareholder Resolution: The directors or shareholders must pass a special resolution to voluntarily liquidate the company.
- Appoint a Liquidator: A liquidator must be appointed to oversee the process. The appointment is usually approved by the Master of the High Court.
- Lodge Liquidation Documents with CIPC:
- CM26/CoR40.1 – Special resolution for winding up.
- Affidavit confirming the reasons for liquidation.
- Proof of the liquidator’s appointment.
- Notice of liquidation published in the Government Gazette and newspapers.
- Notify Creditors and SARS: The liquidator will notify creditors and SARS to settle any outstanding debts.
3. Finalize the Liquidation Process
- The liquidator will oversee the distribution of assets and settlement of liabilities.
- Once all obligations are met, the liquidator will submit final reports to the Master of the High Court.
- The company will then be officially deregistered as ‘Liquidated’ instead of ‘Deregistered due to non-compliance’.
Why Opt for Voluntary Liquidation Instead of Deregistration?
- Legal Clarity: Voluntary liquidation ensures that creditors, SARS, and stakeholders are formally informed and claims are settled.
- Avoid Future Liabilities: A proper winding-up process eliminates potential risks of outstanding liabilities resurfacing.
- Compliance with Regulatory Requirements: Certain industries and financial institutions require a formal liquidation process rather than an administrative deregistration.
Conclusion
Transitioning from an ‘Annual Return Deregistration’ process to a ‘Voluntary Liquidation’ with CIPC requires careful steps, including restoring the company’s status, passing resolutions, and appointing a liquidator. By following the correct procedures, business owners can ensure a transparent and legally sound dissolution of their companies.
