Patrick McGrath

BA,LLB(Hons) MComLaw(Hons)
Patrick McGrath

Phone +64 9 300 1257
Mobile +64 21 619 540
patrick@mcgrathlaw.co.nz

Vulcan Building Chambers
Level 4 Vulcan Buildings
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PO Box 3320
Auckland 1140
New Zealand

Company law – Restoring a company to the register

Paper presented for the Auckland District Law Society, April 2006

1.          INTRODUCTION

Applications to the Court to restore companies to the Register are quite common.  Frequently, companies get removed from the register, for reasons such as failure to file an annual return, in situations where the directors either do not know about the removal, or do not appreciate its significance. 

One of the effects of removal from the register is that any property of the company vests in the Crown.  This may include the right or interest of a company in litigation.  Sometimes companies involved in litigation as plaintiffs have become aware during the course of it (and sometimes even during a hearing), that they have been removed from the register and it is necessary to try to have the company restored before the claim can be pursued further.

It is also fairly common for an intending plaintiff to apply to have a company restored in order to pursue a claim against the company.

In undisputed cases, the Registrar can restore a company to the register after giving public notice of intention to do so and provided there is no objection.  In other cases, an application to the Court is required.  The Court’s discretion is wide and in the majority of cases the company is restored to the register notwithstanding the objections of the party opposing.  Often that party will be a defendant or intended defendant who perceives an obvious collateral advantage in opposing restoration.

This section of the paper firstly looks at the ways in which companies are removed from the register then at the Registrar’s powers, then at the powers of the Court to have companies restored to the register.  

2.          METHODS OF REMOVAL FROM THE REGISTER

Failure to file an annual return / Ceasing to carry on business

If a company does not file an annual return as required by s214, the Registrar will assume that the company has “ceased to carry on business” and that “there is no other reason for the company to continue in existence” under s318, such as being a party to litigation.

Note that failure to file an annual return is an offence rendering every director of the company liable to a fine of up to $10,000.

These days, the Companies Office sends reminders to the directors (including reminders by email or text message) in advance of the allocated month for filing the annual return.  If an annual return is not filed in the allocated month, a letter is sent the following month to the company’s usual address for communications and to at least one director.  If the return is still not filed, notice under s319 is sent to the registered office the following month giving the directors not less than 20 working days to demonstrate that the company has not ceased to carry on business or there is some other reason for the company to continue in existence. 

At this time, the Registrar also writes to persons who have registered security interests under the Personal Property Securities Act 1999 and advertises the Registrar’s intention to remove the company in the Gazette and in the major newspaper in the region where the company has or had its principal place of business.
Persons wishing to object to removal of the company must do so within the period specified in the notice, which is not to be less than 20 working days, on any of the grounds set out in s321:

(a)     That the company is still carrying on business or there is other reason for it to continue in existence; or

(b)     That the company is a party to legal proceedings; or

(c)     That the company is in receivership, or liquidation, or both; or

(d)     That the person is a creditor, or a shareholder, or a person who has an undischarged claim against the company;

(e)     That the person believes that there exists, and intends to pursue, a right of action on behalf of the company under Part 9 of the Act;

(f)      That, for any other reason, it would not be just and equitable to remove the company from the register.

If an objection is made based on grounds (a), (b) or (c), the Registrar may only proceed to remove the company if the objection is withdrawn or the Registrar is satisfied that:

(a)     The facts upon which the objection is based are not, or are no longer, correct; or

(b)     The objection is frivolous or vexatious.

If an objection is based on grounds (d), (e) or (f), the Registrar will notify the objector that within 20 working days the objector must apply to the Court to have a liquidator appointed under s241(2)(c) or under s323 for an order that the company not be removed.

If application is not made within the 20 working day period, or is made and is unsuccessful, the Registrar must proceed with the removal.

The removal of the company takes effect when a notice by the Registrar stating that the company is removed is registered under the Act.   From this time, the company no longer exists.  There are no longer any shares, shareholders, directors, registered office or address for service.

Any property still in the company just before it is removed is vested in the Crown under s324.  Any person claiming to be entitled to the property, or the proceeds from its realisation, must apply to the Court for an order vesting the property in that person, or compensation.

Removal at the request of the shareholders

Under s318(d), the shareholders by special resolution can request that the company be removed on the grounds:

(a)     That it has ceased to carry on business, has discharged its liabilities to all known creditors and distributed its assets in accordance with its constitution and the Act; or


(b)     That there are no surplus assets after paying all or part of the company’s debts, and no application to liquidate the company has been made.

The request must be accompanied by written notice from the Commissioner of Inland Revenue stating that the Commissioner has no objection to the company being removed.

Once the Registrar receives a request that is in order, he must give public notice of his intention to remove the company and allow 20 working days for objections under s321, and the process from that point is the same as above.

Liquidation

As property of the company vests in the Crown on removal of the company from the register, the above methods are unsuitable in the case of companies with assets and liabilities, and liquidation should be used in those cases.  Once the liquidator gives the final report to the Registrar under s257(1)(a), the Registrar gives public notice of his intention to remove the company from the register.  At least 20 working days must be given for any objections under s321, and the process followed from that point is as above.

Amalgamation

An amalgamating company, other than the amalgamated company, must be removed from the register on the day the Registrar issues the amalgamation certificate under s224.

3.          RESTORING A COMPANY TO THE REGISTER

A company may be restored to the register by the Registrar under s328 or by the Court under s329.

Section 328

Upon application by a person who, at the time the company was removed, was a shareholder, director, creditor or liquidator or receiver of the property of the company, the Registrar must restore the company to the register if satisfied that when the company was removed, it was:

(a)     Still carrying on business or other reasons existed for the company to continue in existence; or

(b)     A party to legal proceedings; or

(c)     In receivership or liquidation, or both.

Before restoring the company, public notice must be given and at least 20 working days allowed for objections.  If an objection is received, the Registrar must not restore the company to the register.  There is no discretion.  As the grounds upon which an objection may be based are not specified, it seems that any objection, regardless of who it is from and on what grounds it is made, puts an end to the s328 procedure, and an application to the Court under s329 is the applicant’s only option if it wishes to have the company restored.


Section 329

Application to the Court to have a company restored may be made under s329.  The parties entitled to apply are as for s328 (shareholders, directors, creditors, liquidators and receivers) and in addition include the Registrar and persons who at the time the company was removed:

(a)     Were party to legal proceedings against the company; or
(b)     Had an undischarged claim against the company.

In addition, any other person may apply with leave of the Court.

The Court may (not must) restore the company if satisfied of any of the same grounds as for s328 (still carrying on business or “other reason”, party to legal proceedings, in receivership or liquidation) and in addition may restore the company if satisfied that at the time the company was removed from the register:

(a)     The applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(b)     The applicant believed that a right of action existed, or intended to pursue a right of action, under Part 9.

Further, the Court may restore the company if “for any other reason it is just and equitable” to do so.

Before restoring the company to the register, the Court may require the company to remedy any non-compliance with the Act that occurred prior to the company being removed, such as filing annual returns and paying fees.

If the Court restores a company to the register, it may make orders aimed at placing the company and other persons as nearly as possible in the same position as if the company had not been removed.   For example, in Re West 12/05/03, Ronald Young J, HC Napier, M37/02, Mr West had failed in the Employment Tribunal in a claim for unpaid wages on the basis his employer was not the person Mr West had named as respondent, but was in fact a company, Performance Plus Marketing Ltd.  That company had been struck off.  Mr West was successful in his application to have the company restored, and in having orders made under s329(4) that time would not run under the Limitation Act from the date of the Employment Tribunal’s decision (which was when Mr West was first made aware his employer was the company) until the date the company was restored to the register.

Re Saxpack Foods Ltd

Re Saxpack Foods Ltd is the leading case on the principles relevant to the Court’s discretion under s329(1).   They are:

(a)     Where there is opposition to an application to restore a company to the register on the grounds that its restoration would not be “just”, the person opposing the application must have a legitimate interest in that opposition. 

(b)     Where litigation was underway when the company was struck off, it would be unusual for a party to that litigation to successfully oppose restoration;

(c)     There must be full and frank disclosure to the Court as to the circumstances leading up to the striking off;

(d)     The personal circumstances of the applicant which led to the striking off may be considered, such as illness or ignorance of the striking off;

(e)     The countervailing public and private disadvantages to the applicant and the public must be assessed;

(f)      The length of time which has elapsed since the striking off is a relevant factor; and

(g)          Misconduct on the part of an applicant requires consideration, but the Court when considering a restoration order has no power to impose a penalty on an applicant.

Re Saxpack Foods was a case where midway through infringement of patent litigation by Saxpack Foods against Watties it was discovered that Saxpack Foods had been struck off after failing to file annual returns for 8 years.  In fact, this was discovered during a hearing under R 426A of the High Court Rules where the plaintiff was required to seek leave to continue its proceedings after not taking a step for more than 12 months.  The applicant to have the company restored, Mr Sax, was the company’s only creditor and its majority shareholder.  He admitted receiving notices warning him that the company would be struck off but said he did not appreciate the effect this would have on the litigation.  The company was restored, there being no objectors other than Watties, “a litigant with a collateral purpose in view”.

Downsview Nominees Ltd v Commissioner of Inland Revenue

The recent (June 2005) Downsview decision demonstrates the breadth of the Court’s discretion to grant leave to parties outside the categories of persons who may apply as of right under s329(2), to apply to have a company restored to the register.

The plaintiff, Downsview Nominees Ltd, applied for leave to apply to have 19 companies restored.  These were companies used for tax avoidance purposes in a business structure known as “the Russell Template”.   They were all objectors to an assessment for income tax in proceedings before the Taxation Review Authority.  They had assigned their rights as objectors in those proceedings to the plaintiff by deed of assignment, then the 19 companies had been allowed by the plaintiff or Mr Russell to be struck off.

However, it emerged that the deed of assignment was ineffective, as tax cases established that the right to object was personal to the taxpayer and could not be assigned.  Therefore, the only way the objection proceedings could continue was if the companies were restored.  The Commissioner of Inland Revenue objected and was the only objector.  The Registrar of Companies and Secretary of Treasury had been served and abided the decision of the Court.

For the Commissioner, it was argued that the Court’s discretion under s329(2) (c) to allow “any other person” to apply was limited to persons who can establish a legal, as opposed to a factual, nexus to or interest in the application for restoration.  There could be no legal nexus because the deed of assignment was ineffective.

Abbott AJ rejected that argument and granted leave to bring the substantive application to have the companies restored.  His Honour agreed that there was no legal nexus but held it was sufficient for there to be a factual nexus.  There was a sufficient factual nexus due to the connection between the plaintiff and the 19 companies and the fact that Mr Russell was a director of the plaintiff and also a director of some of the companies or, in other cases, a director of companies owning the shares in the companies where restoration was sought.

It was held that the discretion was unfettered and that the Court could take into account anything it thought relevant.   His Honour noted that the 1993 Act had widened both the grounds upon which applications for restoration could be brought as well as the categories of persons who could apply, and that the persons with a legal nexus appeared to be those who could apply without leave, suggesting that the discretion was meant for persons falling outside of those categories.

Procedure

An application under s329 is commenced by filing a notice of originating application and affidavit(s) in support under Part 4A of the High Court Rules.  Directions as to service should be sought, and normally the papers will have to be served on the Registrar, the holder of any registered charge, the persons who were directors and shareholders just before the company was removed, and the Secretary of the Treasury  (on behalf of the Crown in whom the company’s property is vested).   In practice, it is sometimes worth calling the legal staff at the Companies Office and Treasury to discuss the intended application.

Notice of restoration

A company is restored to the register when a notice to that effect signed by the Registrar is registered under the Act.   The company is then deemed to have continued in existence as if it had not been removed.

Property

Property that became vested in the Crown under s324 when the company was removed is vested in the company again when it is restored.   This does not apply where a person has been compensated under s324(4)(b).  There is also an exception where land has been registered in favour of the Crown, in which case the company must apply to the Court to have the land transferred back to it, or for compensation.

Liquidation of company removed from the register

It is possible under s327 to apply to the High Court to have any assets that remain in the removed company’s name liquidated without restoring the company to the register.  Creditors are the most likely applicants under s327, but a shareholder might apply if the liquidation might result in surplus assets. 

Section 327(2)(b) applies s331 to the property of the removed company so that property that had vested in the Crown under s324 is vested in the company again, subject to the exceptions in s331.  The appointment of the liquidator is under s241 and usual liquidation procedures apply, except that at the end of the process there is no formal filing of the liquidator’s report and removal of the company (as it has already been removed).  In practice, however, the Registrar does allow liquidators to post their reports on the Companies Office website should they wish to do so. 

It should be made clear in the Court order appointing the liquidator that the company concerned is a removed company and that s327 applies.  If not, problems could arise. For instance, if following removal of the company, another company with the same name has been incorporated, the liquidation report of the removed company might be registered against the new, “live” company.

Deal informally with Treasury

It is sometimes possible to deal with uncontentious matters informally involving property of removed companies, without the need to restore them.  For instance, to have a mortgage discharged where it was given in favour of a defunct company, the registered proprietor can ask the Treasury to deal with the interest under the mortgage as bona vacantia (ownerless goods), and execute the discharge. 

The Treasury will require a written request, an indemnity, a certificate from the Registrar that the company has been removed from the register and has not been restored (to confirm the Treasury has the right to deal with the property since restoration would mean the property is vested again in the restored company), and a fee may be charged.

Restoring a company removed under earlier Companies Acts

If a company was removed under an earlier Companies Act it must be restored under the provisions of that Act.  However, when such a company is restored it becomes a company registered under the 1993 Act without any formality, by virtue of s13A of the Companies Reregistration Act 1993.

Companies removed under the Companies Act 1955 in its pre-1 July 1994 form may be restored under s336(7) of the 1955 Act as retained in force by s42(4) of the Companies Amendment Act 1993 and s3 of the Companies Act Repeal Act 1993 as amended in 1997.  An application to the High Court is the only method of restoring these companies.  There is no power in the Registrar to do so.  There was originally a 20 year time period for these applications, subsequently reduced to 2 years in 1993 and then in 1997 a discretion for the Court to allow applications outside the 2 year period was introduced.  There is no time limit under the 1993 Act.

For companies removed under the Companies Act 1955 in its post-1 July form – i.e. for companies that did not reregister under the Companies Reregistration Act 1993 – a regime similar to ss328 and 329 of the 1993 Act exists.  Sections 303 and 304 of the 1955 Act in its amended form correspond to ss328 and 329 of the 1993 Act.  However, in s303 of the 1955 Act the period for objections is 28 days, as opposed to the 20 working day period in s328 of the 1993 Act.

Patrick McGrath, April 2006