Shareholders can provide your company with the necessary capital it needs to grow. However, dealing with shareholders who are deregistered companies can be a complex situation. Once a company is deregistered, it ceases to exist as a legal entity and is removed from the ASIC register of companies. After deregistration, the company can no longer conduct business, enter into contracts, or hold assets in its name. In other words, shareholders that are deregistered companies may lose their legal rights and protections, including the ability to participate in shareholder activities or receive dividends. In this article, we explain:
- what deregistered companies are;
- the effects of deregistration; and
- how to deal with shareholders who are deregistered companies.
What is Deregistration?
An Australian company may be deregistered by either:
- voluntarily deregistration;
- administrative deregistration by ASIC; or
- court order.
Once deregistered, a company ceases to exist. The Australian Taxation Office will cancel the company’s:
- Australian business number (ABN);
- pay as you go (PAYG) withholding;
- goods and service tax (GST); and
- any links the company has to registered intermediaries.
What Are the Effects of Deregistration?
Once a company is deregistered, it ceases to exist as a legal entity and can no longer do anything in its own right. Following deregistration, any property the company owned before deregistration will vest in ASIC or the Commonwealth. ASIC is generally the only party legally able to deal with company property after deregistration.
Companies and directors should ensure they:
- have signed all relevant documentation for the transfer of any tangible and intangible assets; and
- wait until the transfer is successfully registered prior to deregistration.
Where this is not followed, an application can be made by the company to ASIC to execute any relevant transfer documents to vest property held by the company, for example, the new trustee of the trust.
Continue reading this article below the formDealing With Shareholders Who Are Deregistered Companies
Shareholders are individuals, companies, or entities that own at least one share of a company’s share capital. Under the Corporations Act and company constitution, shareholders may have various rights in the company, such as:
- attending meetings;
- voting at meetings;
- inspecting records; and
- being entitled to a share of the company’s profits.
Most companies should have a constitution and shareholders agreement, known as governing documents. These documents manage the relationship and expectations of the board members (directors) and shareholders.
If a shareholder becomes a deregistered company, you should turn to your governance documents to determine the next appropriate steps. You should determine whether the company can sign documents on the shareholder’s behalf, known as a power of attorney.
You should note that once a company is deregistered, ASIC may dispose of or deal with the property as it sees fit. Generally, ASIC does not take any positive steps, such as signing transfer documents or passing company resolutions, though they will not object to any actions required under the governance documents. If provided for under the governance documents, some options available to the company to deal with the deregistered shareholder include a:
- share sale between ASIC and another shareholder; or
- share buy back, where the company buys back and cancels the shares.
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Key Takeaways
Where your shareholder is a deregistered company, ASIC will possess the shares the shareholder held. Nevertheless, ASIC does not take any positive steps of its own accord. Consequently, if your governance documents do not clearly outline the company’s capacity to buy back shares or provide a power of attorney, then it may be challenging to get the shares back from ASIC. Alternatively, where your company’s governance documents provide clear guidance on what happens if a shareholder becomes deregistered, then ASIC will follow these steps.
If you have any questions regarding dealing with shareholders who are deregistered companies, our experienced commercial lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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