Re-use of Company Names Prosecutions

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.

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

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:

1. The other company has been trading for a minimum of twelve months prior to the liquidation and
2. 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