It is not uncommon that a company is deregistered by ASIC without the knowledge of the company’s directors. Deregistration will have a significant effect on the company and on the business carried out in its name during the period of deregistration.

It is possible to reinstate a deregistered company, however it is incredibly important to ensure that the appropriate avenue for reinstatement is selected in light of the particular circumstances.

Discussed below is the manner in which ASIC may deregister a company, the effects of such deregistration and the importance of selecting the appropriate avenue for reinstatement.

ASIC initiated deregistration

Section 601AB of the Corporations Act 2001 (Cth) (Act) empowers ASIC to deregister a company in circumstances (inter alia) where:

(a)          The company has failed to pay its annual review fee and such fee remains unpaid for 12 months; or

(b)          The response to a return of particulars given to the company is 6 months overdue, the company has failed to lodge any document in the previous 18 months and ASIC has no reason to believe that the company continues to carry on business.

Although ASIC is required to notify the company and its directors of an ASIC initiated deregistration under s601AB(4) of the Act, it is often the case (especially if deregistration occurs due to the matters set out in (b) above) that ASIC’s records may not accurately reflect the current company’s registered office or the director’s address.

Further, ASIC is not required to give notice if it does not have the necessary information as to the relevant person’s address or identity.

It is in these situations that a company can be deregistered without the knowledge of its directors.

Effect of deregistration

Once a company is deregistered, s601AD of the Act specifies that the company then ceases to exist and all company property vests in ASIC. All property held on trust by the company prior to the deregistration vests in the Commonwealth.

Accordingly, the company’s directors will not have the power to bind the company to any agreement or deal with company property.

ASIC and the Commonwealth will be afforded the same property rights as the company previously held in respect of such property, subject to any pre-existing security, other interest or claim or trustee obligations. Any property vesting in this manner may ultimately be disposed of by ASIC or the Commonwealth (subject to certain pre-requisites).

ASIC’s power to deregister a company is a real concern for asset holding entities, which will not likely regularly file documents, or carry on an active business. It these cases, it is incredibly important to make payment of the annual review fee as soon as reasonably practicable to ensure that ASIC do not form the view that the company is not operating a business and exercise its power under S601AB of the Act.

Reinstatement

Although upon deregistration a company ceases to exist, it is possible to resurrect a deregistered company.

A person who was immediately prior to deregistration an officer of the company in question can apply to ASIC to have the company reinstated under s601AH(1) of the Act.

The applicant will have to complete a statutory declaration containing the following:

  1. a statement swearing to the fact that he/she was an officer of the company immediately prior to deregistration;
  2. a statement identifying the manner in which the company was deregistered; and
  3. a statement that the company was either carrying on a business or was in operation at and subsequent to the time that the deregistration occurred.

Any outstanding fees owed by the company to ASIC will also have to be paid at the time the application is made.

An application for reinstatement can also be made either to the Court by a “person aggrieved” by the deregistration, such as a secured creditor of the deregistered company. The Court is empowered to order ASIC to reinstate a company pursuant to s601AH(2) of the Act.

Once a company is reinstated, the company by virtue of s601AH(5) of the Act is taken to have continued in existence as if it had never been deregistered.

But what happens when a director is unaware that a company has been deregistered and continues to operate the company’s business during the period of deregistration?

Validation of conduct during period of deregistration

A director who conducts the business of a company by executing documents on its behalf and dealing with its property during a period of deregistration is acting outside the scope of his/her power because at the time those actions were undertaken:

  1. the company did not exist and accordingly could not enter into agreements; and
  2. the company property had, as at deregistration vested in either ASIC or the Commonwealth, meaning the director had no authority to deal.

The Courts are empowered under 601AH(3) of the Act to validate anything done during the period of deregistration.

Accordingly, any agreement entered into and any dealings with company property during the period of deregistration can be considered void unless the Courts validate same.However the Court’s power to validate directly flows from its power to reinstate.

Simply speaking, a Court will not have the power to validate dealings of a company during its period of deregistration if the company was reinstated by ASIC. A company must be reinstated by a Court if it requires or intends to apply to the Court to validate a transaction which occurred during the period of deregistration.

In Data Tech Communications (Aust) Pty Ltd [2009] NSWSC 402, Data Tech was deregistered and subsequently reinstated by ASIC pursuant to S601AH(1) of the Act. It then sought orders from the Court to validate those actions undertaken by the directors during the period of deregistration.

Barrett J, found at [18] that “the court has no such power [to validate actions of a director] in a case where, as here, the reinstatement is under s601AH(1) [of the Act].”

Effect of Law

The law surrounding reinstatement of a company is quite technical, and many directors fall into the trap of electing to make an application for reinstatement to ASIC as opposed to the Court in circumstances where those directors were still carrying on the business of the Company during the period of deregistration.

If the company was conducting any business during the period of deregistration, it is important that an application for reinstatement be made to the Court rather than to ASIC, to allow the Court to exercise its power to validate those dealings made during the period of deregistration.

If this does not occur, the Company runs the risk of having any agreement entered into during this period being deemed to be void. This can create unnecessary liabilities for a newly reinstated company as well as any individual guaranteeing the company’s performance in such an agreement.

If you have any queries about the best way to reinstate a deregistered company, please do not hesitate to contact Daniel Rathner or Michael Bishop of our office on (03) 9614 7707.

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