Can I Re-use a Company Name after Liquidation?
Directors of a limited company which has gone into liquidation are prohibited from being involved with companies which use the same, or similar, name in the future unless specific procedures are followed. This is covered under Section 216 of the Insolvency Act and a director needs to carefully consider these before proceeding.
What is Section 216?
Section 216 of the Insolvency Act 1986 was introduced to tackle “phoenix syndrome” where directors habitually liquidate a limited but continue trading through a new one, using the same name, as if nothing had happened.
It therefore restricts directors from being directly or indirectly concerned with a company which has a similar name to the liquidated company, including any trading name. For example, a director of “Smiths Beers Limited” which goes into liquidation cannot set up a new limited company called, say, “ABC Limited” but trading as Smiths Beers. The restriction lasts for 5 years and applies to someone who acted as a director at any time within a 12 month period before the liquidation.
If someone is found to be in breach of this restriction they could face criminal proceedings, be disqualified from being a director, or even made personally liable for any debts incurred by the new company.
It should be noted that re-use of the name applies to sole traders and partnerships, as well as new limited companies.
Ways to Re-use a Company Name
There are 3 ways in which a director can avoid the restrictions outlined above and re-use a company name following liquidation. Firstly, if the director is involved with another business which has already been using the same name for a period of at least 12 months before the other company went into liquidation. Given it is unlikely that a director would have 2 businesses operating under the same trading name for that length of time this option is not normally available.
Secondly, and most frequently, the director can make arrangements with the liquidator to purchase substantially all of the assets from them once the company has entered into liquidation. Before doing this the director must notify all creditors of their intention to do this, and to publish a notice in the London Gazette. This option therefore requires careful co-ordination and timing, especially if the director wishes to maintain continuity of trading.
Thirdly, the director can apply to court for permission to re-use the company name. This must be done within 7 days of the liquidation and it allows for the name to be used whilst waiting for the court’s decision, providing this comes within 6 weeks of the application.
What to do if you are already re-using a Company Name
If you believe that you are already re-using a company name, but may not have complied with Section 216 as described above, then it is vitally important that you seek professional advice from an insolvency practitioner or solicitor.
In the event that a director is in breach of Section 216 then one of the following options should be followed:
- Resign as a director and cease playing any role in the promotion or management of the company
- Change the name of the company to something which isn’t similar to the previous one. This would need to include any trading styles as well
- Apply to court for permission to continue using the same name – although it should be noted that any permission granted would not be retrospective
If you need further advice in this area don’t hesitate to contact one of the insolvency specialists at Bridgewood.