Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)15. Chapter 5A: Deregistration of companies
15.1 The rules on the deregistration and reinstatement of companies in Chapter 5A of the Bill replace Division 8 of Part 5.6 of the Law (current ss 571 - 579).
Terminology and concepts in Bill
15.2 The Bill removes various terms used in the Corporations Law to describe a companys ceasing to exist, including dissolving and cancelling. The Law does not need to continue to use these different terms and they are inconsistent with the use in Chapter 2A of the Bill of the concept of the registration of companies, rather than their incorporation or formation. The new provisions in Chapter 5A of the Bill use the term deregistration.
15.3 The concept of dissolution is retained in relation to entities other than companies, for example, bodies corporate. This is necessary as the Law must take into account the possibility of a range of processes by which bodies corporate cease to exist under the law relevant to their incorporation. That process may not necessarily be appropriately referred to as deregistration.
Voluntary deregistration
15.4 Under the Bill, the following persons are able to apply for voluntary deregistration (Bill s 601AA(1)):
- (a)
- the company; or
- (b)
- a director or member of the company. This recognises that it is the officers of the company who customarily lodge applications with the ASC; or
- (c)
- a liquidator of the company. (This option will be relevant if a formal liquidation process is not necessary. It will not be available to avoid normal liquidation procedures, as it is a precondition for voluntary deregistration that the company has no outstanding liabilities.).
15.5 Under the Bill, an application for voluntary deregistration can only be made if the following conditions are satisfied:
- (a)
- all the members of the company agree
- (b)
- the company is not carrying on business
- (c)
- the companys assets are worth less than $1,000
- (d)
- the company has no outstanding liabilities and has paid all outstanding fees and penalties
- (e)
- the company is not a party to any legal proceedings (Bill s 601AA(2)).
15.6 The ASC is required to give 2 months notice of an intended deregistration on its national database and by publication in the Gazette (Bill s 601AA(4)). In addition, the ASC Alert system enables subscribers to receive timely notice of the deregistration of a company in which they may have an interest.
15.7 The Bill includes a transitional provision dealing with deregistrations initiated before the new rules commence (Bill s 1437). Arrangements under current section 574A relating to the deregistration of companies dissolved under the State Bank (Corporatisation) Act 1994 of South Australia are preserved in the Bill (Bill s 1440).
ASC initiated deregistration
15.8 The Bill sets out the circumstances in which the ASC may deregister a company (Bill s 601AB). ASC deregistrations may occur where a company is at least 6 months late in lodging its annual return, has not lodged any documents for at least 18 months and the ASC has no reason to believe that the company is carrying on business (Bill s 601AB(1)). The Bill also lists other, less common, situations in which the ASC may act to deregister a company (Bill s 601AB(2)).
15.9 The Bill requires the ASC to give notice of the intended deregistration to all of the companys directors, to the company itself and to any liquidator of the company. As is the case for voluntary deregistrations, the ASC is also required to give notice in the Gazette and on its ASC database (Bill s 601AB(3)).
15.10 The Bill sets out the circumstances in which the ASC is required to deregister a company on the basis of a Court order or after a liquidation (Bill s 601AC).
Effect of deregistration
15.11 The Bill clarifies the effect of deregistration in 3 ways. First, it provides that a company ceases to exist on deregistration (Bill s 601AD(1)). The separate concept of dissolution is abolished. This does not affect the liabilities of individuals or entities associated with the deregistered company prior to deregistration.
15.12 Secondly, upon deregistration, the property of the deregistered company vests in the ASC, subject to any existing security or other interest (Bill Schedule 2 Item 398). The ASC then has all the powers of an owner over the property vested in it (Bill ss 601AD(2) - (4)).
15.13 Thirdly, directors of a company immediately before deregistration have a statutory obligation to keep the company books for 3 years after deregistration (Bill s 601AD(5)).
Powers of the ASC
15.14 Under the current Law, the ASCs power to deal with the assets of a deregistered company is unclear in a number of situations. The Bill resolves these ambiguities by distinguishing between circumstances when property which was held by the company on trust vests in the ASC and circumstances when property which was not held on trust vests in the ASC (Bill ss 601AE(1) and (2)).
15.15 The Bill allows the ASC to choose to continue to act as trustee when dealing with trust property. This will enable the ASC to carry out any action permitted by law under the trust deed (Bill s 601AE(1)(a)).
15.16 Alternatively, the ASC will be able to apply to a court for the appointment of a new trustee (Bill s 601AE(1)(b)). This provision makes it clear that the ASC has the power to apply to the court. It does not alter the courts powers in relation to the appointment of new or additional trustees.
15.17 When dealing with property of a deregistered company which is not held on trust, the ASC is able to dispose of or deal with the property as it sees fit, defray any expenses incurred by it in exercising its powers in relation to the company, discharge obligations attaching to the property (to the extent that the proceeds are available to satisfy those obligations) and deal with any remaining funds under the unclaimed property provisions in Part 9.7 of the Law (Bill ss 601AE(2) and (4)).
15.18 The property of a deregistered company vested in the ASC will remain subject to all liabilities imposed on the property under a law, without the benefit of any exemption the property might otherwise have because of being vested in the ASC (Bill s 601AE(3)).
15.19 The ASC is required to keep a record of any property of a deregistered company that the ASC knows has been vested in it under Chapter 5A. This obligation will include keeping a record of the ASCs dealings with any property, keeping accounts of all money received from those dealings and keeping all receipts relating to that property (Bill s 601AE(5)).
15.20 The Bill enables the ASC to fulfil the outstanding obligations of a deregistered company or its liquidator without limiting this power to situations where property of a deregistered company has vested in the ASC (Bill s 601AF).
15.21 The Bill provides transitional arrangements for situations where property has vested in the ASC under current Division 8 of Part 5.6 before the new rules commence (Bill s 1438).
Third party rights against insured deregistered companies
15.22 At present, a person wishing to make a claim against a deregistered company may need to apply to a court for reinstatement of the company in order to bring an action against it. The Bill enables a person to proceed directly against the insurer of a company that is deregistered, without seeking the companys reinstatement (Bill s 601AG). Comparable rights have previously been provided in other legislation, for example, section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) .
15.23 The Bill enables a third party to recover directly from the insurer of the deregistered company an amount payable under their contract of insurance if 2 preconditions are met:
- (a)
- the deregistered company had a liability to the third party;
- (b)
- the insurance contract covered that liability (Bill s 601AG).
Reinstatement
15.24 Currently, the ASC may only reinstate a deregistered company if it was deregistered as the result of an error on the part of the ASC. Other applications for reinstatement must proceed by application to the Court (current s 574).
15.25 The Bill provides the ASC with clear powers to reinstate a company which has been deregistered when it should not have been, for example, in a situation where the company is still carrying on business. This avoids the cost of a court application for reinstatement (Bill s 601AH(1)). The ASCs power to reinstate companies extends to the reinstatement of the registration of a body corporate which was deregistered before the new rules commence (Bill s 1362CH). The Bill also enables reinstatement of companies where an application has been made under current section 571 or subsection 574(3) and that application had not been determined before the commencement (Bill s 1443).
15.26 It is envisaged that the ASC will only exercise its reinstatement power where no dealings with the property of a deregistered company which give rise to third party rights have been carried out during the intervening period. If third parties have become involved, it is expected that reinstatement will generally need to proceed through the Court.
15.27 The Courts reinstatement power is preserved under the Bill (Bill s 601AH(2)). If the Court exercises its reinstatement power under subsection 601AH(2) of the Bill, it may also validate anything done between the deregistration of the company and its reinstatement and make any order that it considers just in the circumstances (Bill s 601AH(3)). The 15 year time limit on reinstatement applications is abolished. In relation to a body corporate that has been dissolved or deregistered for 15 years or more, the ASC may destroy or dispose of any document a transparency of which has been incorporated with a register kept by the Commission (Bill Schedule 2 Item 406).
15.28 The Bill requires the ASC to give notice of any reinstatement in the Gazette , and in cases of reinstatement by the ASC, to the applicant for reinstatement (Bill s 601AH(4)).
15.29 Under the Bill, a reinstated company is taken to have continued in existence as if it had not been deregistered. Any third party rights which may have accrued during the period of deregistration will therefore be enforceable. The provision also suspends directors liability during the period of deregistration until reinstatement. The property of a deregistered company that has vested in the ASC will revest in the company upon reinstatement, subject to any existing security or other interest (Bill s 601AH(5)).