How To Avoid Losing IP Rights Through Company Deregistration
If a company-owned trade mark or other Intellectual Property (IP) asset is not dealt with appropriately when that company is deregistered by the Australian Securities and Investments Commission (ASIC), the consequences can be serious.
Note that ASIC has the power to deregister a company even if the owners haven’t directly applied for deregistration.
This article explains what happens to a trade mark when the company that owns the asset is deregistered. It also recommends what action should be taken to protect valuable IP assets ahead of a company deregistration.
What happens when a company is deregistered?
Deregistration of a company happens for many different reasons including:
- trading ceased
- corporate reorganisation
- merger or takeover by another business
- facilitation of the sale of company assets
- insolvency and liquidation
- regulatory non-compliance
When a company is deregistered, it no longer exists legally. It is not permitted to trade, assign or hold assets in its own right and the former directors or office bearers are not allowed to deal with any property that was registered in the company’s name. Any intangible property that was still owned by the company at the time of its deregistration (such as trade marks) becomes vested with ASIC.
When deregistration is complete, ASIC is the only party allowed to manage company property. That means the company loses all legal rights to its assets.
Note that a company’s registered business name is not treated in the same way as an IP asset is and it is not vested in ASIC following deregistration. The registered business name will be cancelled by ASIC when the company is deregistered.
This article on the differences between a registered business name and a registered trade mark provides some helpful context.
Why you need a solution for your trade mark before deregistering your company
Many company owners are entrepreneurs and don’t necessarily have the training, time or resources to manage all the detail of the deregistration process. In many instances, they’re simply unaware of the need to take timeous steps to protect their IP assets prior to deregistration and unaware of the legal ramifications of not doing so.
We have experienced many situations over the years where small business owners have tripped up as a result of this aspect of law. They were shocked to learn that they had, effectively, lost their IP asset and that they faced a potentially protracted battle to regain ownership with no guarantees of success.
Many people also don’t realise that non-use of a trade mark is another risk area when a company is deregistered.
Non-use occurs when the trade mark hasn’t been used in the course of trade for a continuous three-year period by the named owner at that time– a situation which is quite possible when a company is deregistered and no plans had been made to transfer the trade mark to another party. A third party (which is generally a competitor) can apply to have a trade mark removed from the register on the basis of non-use.
Can IP assets be reclaimed if the company has been deregistered?
The short answer is ‘yes’, but the process can be long and complex and there are no guarantees of success.
Should the previous office bearers of the defunct company want to reclaim the company-owned trade mark or other IP asset, they will need to follow due process with ASIC and IP Australia.
Reclaiming the trade mark once the company has been deregistered may be done in a number of ways – none of which is guaranteed to have a positive outcome. These include:
- Applying to reinstate the company (usually easiest and most cost effective where possible)
- Applying to buy the IP rights from ASIC (can be complicated and potentially costly, depending on the independently assessed value of the trade mark or IP right.
- Applying for the same trade mark, in new owner’s name and then seeking to remove the older right on non-use grounds (not ideal, but often less costly than a buy-back from ASIC)
Note that it may not even be possible to do any of the above, so careful diligence is required to preserve the value of your IP assets prior to deregistering a company. It is also recommended that a specialist trade marks attorney be consulted on the best way forward, including the acquisition of rights from ASIC.
What to do to avoid losing IP rights through company deregistration
If you intend deregistering your company for any reason and the company is the legal owner of a registered trade mark or other IP asset, you will need the company to transfer or assign ownership of the asset to another party before you start the process with ASIC.
Assignment of a trade mark is covered in Section 106 of the Trade Marks Act 1995 (Cth) and is done by finalising a contract between the two parties called a Deed of Assignment. This contract is binding and final, so it is important to understand the full picture and to ensure that all parties’ interests are protected.
Assignment can be either ’full’ or ‘partial’ (in the case of a registered trade mark having different owners for different goods and services).
Once the contract has been signed by an authorised person for the assignor and assignee/s, the trade mark will be deemed to have been assigned. IP Australia needs to be informed of this event and supporting documentation will be required in order for the regulator to update its trade mark register.
Unregistered/common law rights and business goodwill should also be considered before a company is deregistered.
An article I wrote entitled ‘Solutions for your trade mark before deregistering your company’ provides helpful detail on this topic.
Benefits of assigning IP rights prior to company deregistration
Finalising a Deed of Assignment (or other appropriate agreement) prior to deregistering a company is the only way to avoid losing IP rights when a company is wound up or struck from ASIC’s register. Importantly, if a company is to be deregistered following liquidation, additional factors are likely to be involved. Therefore, the options discussed in this article are largely appropriate for other reasons for a company’s deregistration.
The outcomes of such an agreement include:
- Permanent transfer of IP rights
- Removal of the risk of easy removal attacks for non-use
- Enforceable legal protections for valuable IP
Key takeaways
Forward planning ahead of deregistering a company is clearly the best way to protect IP rights.
Business owners need to take proactive steps such as transferring or assigning rights to their trade mark before deregistering the company – otherwise they face an uphill battle to regain their rights and may even be at risk of losing their valuable IP asset altogether.
The Mark My Words Trademark Services team has been involved with numerous cases where companies have neglected to transfer ownership of their trade marks before deregistering. We know from experience that the only way to avoid losing IP rights through company deregistration is to ensure that IP rights are properly transferred prior to deregistration – and we can help you find the best practical solution at an affordable cost.
