What Happens to IP When the Owning Company is Deregistered in Australia?
Ryan Boe and Sylvie Tso, Spruson & Ferguson (Australia)
In Australia, there are multiple avenues to close down a company, resulting in its deregistration. For example, the company may be wound up (voluntarily or involuntarily), go into receivership, go into liquidation or be directly deregistered (either voluntarily or initiated by the Australian Securities & Investment Commission (‘ASIC’)). For these options, a key part of the process is that the Australian assets of the company are (or at least should be) liquidated prior to deregistration. Accordingly, Australian assets of the company will typically be sold off or divested in the lead up to deregistration by the company or appointed persons such as liquidators or receivers. Nonetheless, it is not uncommon for there to be Australian assets remaining in the deregistered company’s name.
Remaining IP Assets
Registrable forms of intellectual property such as Australian patent applications and patents, industrial design applications and registered industrial designs, trade mark applications and registered trade marks and other types of intellectual property are assets or property just as real estate, industrial machinery, office equipment and furniture, vehicles and fixtures, and are capable of being owned and disposed. The key difference is that the former is intangible property and the latter is tangible. Without due care and attention during the deregistration process, intangible property such as intellectual property may easily be overlooked in favour of tangible property.
When a company is deregistered in Australia, it ceases to exist as a legal entity and is therefore no longer capable of owning assets. In general, property that remains registered in the deregistered company’s name vests in the Australian government via ASIC . There are a few exceptions to this, such as where a third party has a secured interest in property, or where such ownership involves land title. ASIC is also bound to deal with the property that has vested in it as the company or liquidator would be bound to do if the company was not deregistered . This also applies to Australian intellectual property that is owned by a foreign company that is deregistered in its place of incorporation.
Transfer of IP after Deregistration
If a third party asserts that it is entitled to property vested in ASIC (that is not held in trust), or that it has some beneficial interest in the intellectual property, it will need to prove to ASIC, typically by way of statutory declaration, how the third party is entitled to the transfer and why the transfer was not completed.
Where a third party does not have an established entitlement to property vested in ASIC, it can seek to buy the property from ASIC. ASIC’s power to sell property vested in it is discretionary, and it will generally not sell when:
• The property is held by the company on trust
• The property is the subject of a dispute raising doubt as to ownership
• Any party is seeking to reinstate the company (remove the deregistration).
ASIC will sell the property on the following conditions:
• Existing liabilities on the property under law remain
• The property is sold for market value
• ASIC makes no representation or warranties regarding the property
• It is up to the prospective purchaser to establish existing ownership and encumbrances
• Any issues with the property become the purchaser’s problem
• Applications to purchase property from ASIC will be suspended if an application to re-register is received until an outcome is reached
• All fees are the responsibility of the prospective purchaser.
Applications to purchase or recover assets from ASIC can involve detailed actions that can be costly and, due to the discretionary nature of ASIC’s power to deal with the property, there is no guarantee that an application to purchase or recover will be successful.
Strategies to Protect IP Assets
For many companies, and often for start-up companies, much of the company’s value is tied to the intellectual property assets owned by the company. This presents a risk that, should the company fall on difficult times and become deregistered through any of the above noted mechanisms, the intellectual property owned by the company can be sold off to satisfy creditors, or end up owned by ASIC.
One common mechanism to circumvent this risk is to have a separate but related company set up to be the owner of the intellectual property. This is often referred to as the intellectual property holding company or the ‘IP holding company’. The IP holding company may be a parent or a sister company with common ownership. The IP holding company generally does not trade and will therefore be exposed to minimal risks and liabilities. The trading or operating company will access the relevant intellectual property under licence from the IP holding company via intra-group licensing arrangements. In the event that the trading or operating company is at risk of deregistration, ownership of the intellectual property is protected as it is vested in the IP holding company (and not the trading company).
If your company develops intellectual property, it is important to consider setting up the correct business structures to protect your assets. Your intellectual property service provider and financial managers would be able to give valuable advice concerning intellectual property ownership and intra-group company licensing.