There are strict limits on the reuse of a company name after it has gone into liquidation.
To stop directors simply liquidating a debt-ridden business and starting up again under the same name, but free of debt, the law ordinarily prohibits the reuse of a company name, with some exceptions.
Section 216 of the Insolvency Act 1986
S.216 of the Insolvency Act 1986 provides that the director of an insolvent company cannot be involved in another company that has the same name or a name that is so similar that it may be assumed to be associated with the insolvent company. This includes a trading name as well as a company name.
The restrictions last for five years and as well as being banned from being a director in a company with a prohibited name, the insolvent company director may not act as a director or shadow director or be involved in management, formation, directing or promotion of the new company or of an unincorporated business.
Penalties for breaching s.216
Breaching s.216 of the Insolvency Act is a criminal offence and a director who is found guilty could be fined up to £15,000 and/or imprisoned for up to two years. They may also be held personally liable for all relevant debts of the new company.
Exceptions to the rule against using an insolvent company name
There are three exceptions whereby a director may be granted permission to reuse the name of an insolvent company.
1. Purchase of the business in liquidation
The licensed insolvency practitioner or liquidator who is dealing with the insolvent company can elect to sell it to the new company. If this route is taken, then notices in a prescribed format must be sent to all of the insolvent company’s creditors and published in the Gazette within 28 days of the date of the sale.
The insolvency practitioner will also need to change the name of the insolvent company at Companies House to enable the new company to take up the former name.
2. Court permission
The director of the new company can ask the court for permission to act in this capacity for six weeks to allow a hearing to take place. The application must be made within seven business days of the date of liquidation for it to be successful. The permission will last either for six weeks or until an application to act permanently is heard, whichever is first.
In considering whether to grant consent, the court will look at how well-funded the new company is, whether it has sufficient working capital and how competent the financial team appear to be.
3. Existing use
Where the prohibited name has already been in use by the company for at least twelve months, and provided that it has not been dormant during that time, then the name can continue to be used. This allows groups of companies with the same trading name to continue operating, despite the insolvency of one company.
Reusing an insolvent company name
While it is possible to reuse an insolvent company name, the onerous penalties for doing so incorrectly mean that it is always advisable to seek legal advice to ensure that the correct process is followed. There are strict deadlines for lodging applications and sending and publishing notices and it is important to adhere to these.
Contact us
At Witan Solicitors we can advise you in respect of continuing as a director and the implications of the Insolvency Act as well as in respect of restructuring a business.
If you would like to reuse an insolvent company name and you would like to discuss this with an expert Insolvency, Company and Commercial lawyer, email us at info@witansolicitors.co.uk or fill in our contact form. We have offices in Birmingham, London and Northampton.
