In June, it is estimated that three hundred thousand (300,000) companies and businesses risk deletion from the company/business registers. A B&FT news report of 19th March 2021 quoted the Registrar-General, Mrs Jemima M. Oware as issuing a final public notice - “kindly note that if at the expiration of three months from the date of this notice, the Company has still not filed its Annual Returns, the name of the Company shall, unless a cause is shown, be struck off the Register and the Company shall stand dissolved”.
The 1st public notice issued on the 12th May 2020, gave a bloated database arising from non-compliance with the filing of annual returns and re-registration (into the eRegistrar) as a reason for the intended deletion of dormant companies and businesses – as part of efforts to have “accurate, verifiable and credible Company/Business Register”.
Further, the notice puts non-compliance from a database of 1,264,634 companies and businesses (old and new registration) at 74% - an alarming regulatory compliance failure.
From a data standpoint, the Registrar-General is statistically justified in the up-coming clean-up exercise as 26% compliance rating is a woeful failure demanding urgent remedial actions. However, data analysis alone may not justify such actions. There are legal benchmarks to be satisfied before any “deletion” exercise with grave implications for the affected companies and businesses can take place.
In this article, I shall evaluate the processes commenced for the deletion exercise, its implication on the affected companies and businesses and make some recommendations for enhanced regulatory compliance culture going forward.
LEGISLATIVE BASIS FOR THE “DELETION” NOTICE
By the public notice of 12th May 2020, the Registrar-General gave a hint of the intention to “…trigger the procedure for strike off under Section 289 of the Companies Act 992 and Section 50 of the Incorporated Private Partnerships Act, 1962 (Act 152)" should companies and businesses fail to take advantage of the three (3) intended notices within seven (7) months from the date of the 1st public notice to comply with the new directives.
In this notice, legislative references were made to Section 289, Act 992 and Section 50, Act 152 – which are the only legislative provisions for any deletion in the manner intended.
Section 289 of Act 992, as it relates to companies has an elaborate procedure proposed for dealing with companies that may not be in operation or not carrying on business. However, its discretionary nature gives the Registrar-General the mandate to undertake procedures otherwise than provided in the dissolution without winding up of any company. It is this discretion that provides the legal basis for the issuance of public notices instead of written communications to the related companies.
Administratively, the practical challenges of following the permissible procedure under Section 289, Act 992 may have encouraged the Registrar-General to issue public notices.
As regarding businesses (partnerships), the provisions of Section 50, Act 152 (similar to Section 289, Act 992) supports the Registrar-General’s exercise of discretion to issue public notices.
REGULATORY NON-COMPLIANCE AND DORMANT COMPANIES/BUSINESSES
Companies and businesses are the creation of law. Therefore, there are demands of the law that must be honoured at all times, to guarantee their continued existence – without which they risk early terminations.
In order to ensure compliance with regulatory requirements, various sanction regimes – civil and criminal have been provided under Act 992 and Act 152 to deal with defaulting companies and businesses respectively. As last resort, the Registrar-General has been granted powers to take steps to delete affected companies and businesses from its database.
However, deleting a company or business from the registers using Section 298, Act 992 and Section 50, Act 152 is not directly contingent on the failure to file an annual return or re-registration as the public notices of the Registrar-General have sought to suggest. For clarity, the operative words of Section 289, Act 992 are as follows:
Dissolution without full winding up
289. (1) Where the Registrar (Registrar-General), by reference to personal knowledge, or on information supplied by an officer, member or creditor of a company, has reasonable cause to believe that the company is not carrying on business or is not in operation...” (emphasis mine)
From the above, the legal requirement is that a deletion decision can only be made on the reasonable ascertainment of the “fact” (using any of the proposed means) that a company is not carrying on business or is not in operation. A failure of regulatory compliance – filing annual returns etc. may not necessarily imply that a company is not carrying on business or not in operation - a reasonable conclusion on this fact cannot be limited to the failure to file annual returns for instance.
The demands of Section 289, Act 992 and Section 50, Act 152 are matters which must be known for a fact on a reasonable basis. Regulatory non-compliance like not filing annual returns or re-registration do not offer conclusive evidence that a company is not carrying on business or not in operation.
Where a company is not carrying on business or not in operation, such a company is considered a dormant company – existing only legally without any more business activity. The carrying on of business implies the actual (real) running of a company to provide goods and services – to incur liabilities and create benefits for stakeholders. In this context, it is possible to have a regulatory compliant company that is not in operation or carrying on business at a particular time.
Therefore, more needs to be done to reasonably ascertain whether a company is carrying on business or is in operation. The fact that the law anticipates a mistaken belief of the Registrar-General in the exercise of this power and offers an opportunity for restoration of a company’s name onto the register implies a restrained exercise of the power except on a more verifiable belief to save the affected companies the immediate legal implications and legal actions in any future restoration attempts.
Instructively, for instance, the provisions of Act 992 regarding the filing of annual returns does not mandate the use of the sanction of deleting from the register where a company fails to comply.
The intended use of regulatory non-compliance in support of the use of Section 289, Act 992 and Section 50, Act 152 without the deployment of other verification mechanisms will amount to deleting “dormant companies/business in law” than “dormant companies/business in fact”.
IMPLICATIONS OF THE NOTICES FOR RELATED COMPANIES AND BUSINESSES
With the publication of the final notice, it means the related companies and business will be deleted from the Registrar-General database in June 2021. Immediately, these companies and businesses may take steps to comply with the listed regulatory breaches and prevent imminent deletion.
However, the continued non-compliance may lead to the Registrar-General striking out the names of the registers and publishing the same. On the publication of such notice, the related companies and businesses will stand as dissolved – rendering them legally non-existent.
The legal rights of a company or business to transact business or be in operation ceases on the exercise of this power by the Registrar-General – perpetual existence feature will be terminated prematurely.
The benefits derived by internal stakeholders – employees, directors, etc and external stakeholders – customers, creditors, governmental agencies (payment of taxes, permits etc) will be abruptly terminated. Directors, shareholders, secretaries and their agents will no longer have the power to act on behalf of the related companies. However, liabilities of any director, officer or shareholder shall continue and may be enforced as if the company had not been dissolved.
In essence, any continued operation in the name of a company beyond the striking out and publication of the same will amount to an illegality. – as the company will not be in existence to transact any such business. However, what is not achieved with this process is “winding up” where the assets and liabilities of the related companies will be gathered and settled. The risk business managers and owners run is to assume personal use of assets or undertake a distribution – that exercise will create personal liabilities for unlawful use and distribution. Neither are the liabilities of the deleted company extinguished.
Nonetheless, the affected companies have opportunity within twelve (12) years to apply to the Court for restoration onto the register – a process with its merit requirements.
SOME PROPOSALS GOING FORWARD
An accurate, verifiable and credible company and business register is desirable. Its advantages are enormous for national policy planning, business support planning by the government and general business regulatory regime.
Therefore, companies and businesses must begin to consider regulatory compliance as a critical Key Performance Indicator (KPI) for directors and secretaries. A broader engagement and action plan must be developed and implemented by companies on regulatory compliance - as it guarantees their legal existence.
Also, the Registrar-General must continue to leverage technology to simplify the procedure and reduce the cost of compliance. Further, it must facilitate stakeholder engagements that include physical verification, company or business operational site visits, regular inspections among others.
The supportive nature of the Registrar-General’s department must be proactively used to drive company or business regulatory compliance – the goal should be to offer support for companies and businesses to survive rather than to prematurely terminate their existence.
The Registrar-General has issued the final public notice. Looming is a mass deletion of companies and businesses. The exercise of such power will have serious implications for affected companies and businesses. – rendering all legally non-existent.
The economic and legal consequences could be averted with immediate steps by companies and businesses to comply with directive and save them from premature terminations.
Also, the Registrar-General must reconcile the proposed manner of exercise this discretionary power with the law and ensure it is done with caution, diligence and tact in the spirit of its general obligation of providing support for companies and business to strive and grow.
Author is Richard Nunekpeku, a lawyer with interest in company and commercial law. [email protected]