What happens when I forget to reactivate my company?

Corporations are shielded entities. They separate the company from the people operating it. As such, several laws protect the contractual relationship between the company and its stakeholders. The separation of ownership and control from the legal entity goes both ways. When the company is struck off the corporate registry, it cannot be used anymore and claims are not automatically transferred to the natural persons that used to run the company.

From a legal perspective, the reactivation of a company is defined as a restoration application. Depending on the jurisdiction, the time that lapsed, and other relevant factors, restoration may take several weeks to a few months because of the potential need for court intervention. Therefore, fast solutions are not always available for those in a hurry.

Reactivation of a legal person is often needed to protect the owners from legal action, to avoid liability, and to comply with the rules for repayment in insolvency and bankruptcy proceedings. The latter, where it relates to companies formed in offshore jurisdictions, is often needed for repayment of the proceeds of sophisticated investment fraud and (offshore) bank failure. In matters of (offshore) bank failure, or simple resolution, statutory administrators and liquidators can ask bank customers to provide evidence of their claim via a proof of debt and a proof of claim.

The importance of maintaining a company in good standing is crucial in the matters referred to above. In the Bahamas for example, the Bank and Trust Companies Regulation Bill of 2020 defines the creditor hierarchy in insolvency procedures. The priority of claims lowers the position of unsecured claims of creditors, subordinated debt, and the remaining claims against the bank that were not filed within the time limited therefore under the act. A detailed clarification and practical implementation of these rules is described in this article on the current financial challenges experienced by Lucayas Bank Ltd. It stresses the crucial need for compliance with the local rules for maximum repayment. As such, failure to reactivate an original legal person may result in further loss of money.