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Restrictions on the re-use of Company names following Insolvency
When a company has been liquidated, there are certain rules that restrict the re-use of both the company name and the trading name(s) that were previously used by the liquidated company.
Failure to comply with these rules can lead to:
- The directors of the new company being personally liable for any of its debts if it becomes insolvent
- Potential criminal prosecution in the most serious cases.
The restrictions on the re-use of company names are contained in Section 216 of the Insolvency Act 1986.
How Can We Help? | Re-use of Company names
We can assist in two ways:
- If you are looking to re-use a company or trading name, there are certain procedural steps that can be taken to safeguard you from contravening the Act.
We provide advice and guidance in relation to the procedure to be followed to ensure that you can re-use the company and trading name legitimately.
- If you have received notification alleging that you are in breach of the restrictions contained within the Act, we can represent you in relation to any criminal prosecution or civil claims arising from such alleged breach.
As can be seen from the above, the potential for criminal sanctions and personal liability for any wrong doing (deliberate or otherwise), demands that this is an area on which expert legal advice should be sought at the earliest opportunity.
We assist clients through many types of insolvency claims and we use our experience to deliver the fastest and most cost-effective solution available.
Please feel free to call us for a no obligation confidential discussion:
Restriction on the re-use of a Company name
The restriction applies to a person who was a director or shadow director of a liquidating company at any time during the twelve months before the company went into liquidation.
For that person a company or trading name is a ‘prohibited name’ if:
- it is a name by which the liquidating company was known at any time in that period of twelve months, or
- it is a name so similar to the name of the liquidating company as to suggest an association with that company.
The restriction lasts for five years from the date of liquidation and means the restricted person cannot:
- be a director of any other company that is known by a prohibited name, or
- whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or
- whether directly or indirectly, be concerned or take part in the carrying on of a business carried on under a prohibited name. The prohibited name restriction is not just limited to incorporated entities and extends to prohibiting trade as a sole trader or partnership.
A person who breaches such restriction will be liable to imprisonment, a fine, or both.
What are Phoenix Companies? | Criminal Offences
The restriction prevents ‘phoenix companies’ rising from the ashes of a liquidated company and prevents such a company being established with a clean financial record, using a similar trading name thereby creating the false, and potentially misleading, impression that nothing has changed.
Phoenix companies cause a loss in confidence in the corporate world given that whilst creditors may well be exposed to losses the new company emerges, ostensibly with an unblemished history, despite the fact that it is built upon the ashes of the liquidated company.
The sanctions for such offending are severe and can involve:
- criminal prosecution leading to a fine and/or imprisonment
- the company officers and directors of the phoenix company being held personally liable for any debts of the phoenix company.
Is there any legitimate way to re-use Company names?
The answer is: Yes.
There are three potential routes that could be followed by a person seeking to re-use a company or trading name of a liquidated company:
- Court Approval
A person can seek a court order approving the re-use of a company or trading name.
There are evidential requirements that will need to be met including demonstrating a strong financial base for the new company and the board of directors and management team having sufficient experience of good financial management.
Procedural requirements need to be followed as there are time limits for making an application for such a court order.
- Liquidator Purchase
The re-use of the name of the liquidated company is permitted if the new company has acquired the old business from the licensed Insolvency Practitioner.
There are strict procedural rules to follow such as serving appropriate notices on all creditors and the placing of an advertisement in the London Gazette. There are strict time limits for undertaking these prescribed requirements.
If all of the requirements have been complied with, the relevant person can be appointed as a director of the new company. If the requirements have not been met, the relevant person will be in breach of the Act and the sanctions outlined above will apply.
- Existing use
If the prohibited name is already in use by another company it will usually be able to continue using the name provided:
- the other company has been trading for a minimum of twelve months prior to the liquidation and
- the other company must have been ‘trading’ for this period as opposed to being dormant. Any dormant period during the relevant twelve months will mean the ‘existing use’ route will not be available.
Who Can I Contact For Help? | Kangs Insolvency Solicitors
We welcome new enquiries by telephone or email.
Our team of expert lawyers is here to guide you in relation to any issues concerning the re-use of company names.
As can be seen from the above, the criminal sanctions and personal liability for any wrong doing (deliberate or otherwise), means that this is an area on which you should seek expert legal advice at the earliest opportunity.
We are happy to provide an initial no obligation consultation at our offices in London, Birmingham or Manchester or via video conferencing facilities to explore the issues in your case and to provide an assessment of how we can assist you.
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