As the director of a company you may be considering liquidation in order to start a new business.
In the event of liquidating a company there are a few restrictions which should be taken into consideration.
If you are setting up a new business, you may want to use the same or a similar company name. Section 216 of the Insolvency Act, 1986, places severe restrictions on this practice and you may find yourself facing serious repercussions if you go ahead.
Why do I want to retain my company name?
Some directors prefer to use the same company name, or one that is very similar, to retain goodwill which has been built up over the years by their previous company. This has clear advantages in terms of trading capability and helps to ensure the new business to establish itself.
The problem exists however for those directors who have increased creditor losses in the liquidated company, either through fraudulent activity, deliberate misconduct or simply through negligence.
This is a serious issue, and the ongoing protection of consumers and trade customers is paramount.
What is Section 216 of the Insolvency Act, 1986?
Section 216 of the Insolvency Act details the reusing of a company name after liquidation?
· If a company has entered insolvent liquidation, the name it was known by at the date of liquidation, and during the previous 12 months, becomes ‘prohibited’ and cannot be reused
· The same rule applies to any similar name that suggests there is a connection to the liquidated company, those registered with Companies House, and trading names
· These rules apply to company directors, owners, or officers of the company, who open a new business, whether or not it is incorporated, for a period of five years following liquidation
What are the repercussions of using a prohibited name?
There are three potential outcomes if you use a prohibited name:
– A fine
– Imprisonment
– Personal liability for the debts of your company
Are there any exceptions to using a prohibited name?
There are 3 exceptions to this rule. These are as follows:-
1. The liquidator sells your company
When your business, or a substantial part of the business, is sold on by a licensed insolvency practitioner, you may be able to reuse the name. You must provide legal notice of the purchase to creditors of the old company and place an advert to the same effect via the Gazette.
2. You apply to the court to use the name
The second exception involves the new company requesting permission from the court, also known as ‘leave’, to reuse the name of the insolvent company. The following two conditions should be taken into consideration:
(a) Court leave must be applied for by no later than 7 days from the date the company went into liquidation
(b) Leave will be granted by the court no later than 6 weeks from this date
3. The name is already used by another company
The third exception states that the name of the insolvent company can be used if the following has been met:
(a) The company has been known by that name for the last 12 months before the company went into liquidation
(b) The company must not have been placed into dormancy in the last 12 months
If you require further guidance on the reuse of a company name, Lucas Ross – Business Rescue, Recovery & Insolvency can provide professional advice and support across the UK.
