Can a Director re-use a company name following Liquidation?
The short answer is “No”, but the long answer is “Yes, it is possible but care needs to be taken to follow the rules or you may face criminal proceedings and become personally liable for the new company’s liabilities”.
S.216 of the Insolvency Act 1986 does restrict the re-use of a name previously used by a company that has gone into insolvent liquidation. This restriction applies personally to a director of the company in insolvent liquidation. The name which can’t be used is known as the “prohibited name”.
What is a prohibited name?
A prohibited name is a name by which the liquidated company was known at any time in the 12 months immediately before the liquidation: whether this is its registered name at Companies House, or its trading name, or any name so similar to its registered or trading name as to suggest an association with the liquidated company.
Who is restricted?
The restriction applies to a person who was registered as a director or acted as a director of the company in insolvent liquidation at any time during the 12 months immediately before the liquidation.
What is the restriction?
For 5 years from the date of liquidation, you are not permitted to be a director of or take part in the promotion, formation or management of a limited company that is using a prohibited name. In addition you may not be concerned in or take any part in carrying on a business that is using a prohibited name if the business is not a limited company (for example, if it is a partnership or sole trader).
What is an example of a prohibited name?
If the company in insolvent liquidation was registered at Companies House as ABC Limited and it used the trading name XYZ, then the following would apply:
- The registered name ABC Limited or XYZ Limited would be prohibited.
- The trading name ABC or XYZ would be prohibited.
- The trading name ABC or XYZ used by an unincorporated business (such as a sole trader or partnership) would be prohibited.
- If a company or business had a registered name or trading name so similar as to suggest an association with ABC or XYZ, the name would be prohibited.
Exceptions
There are three exceptions to the restrictions on the re-use of a prohibited name.
First exception: Sale of business
You may use the name if you give the required notice when the whole, or substantially the whole, of the business of the company in insolvent liquidation is sold by the liquidator. You must use a prescribed form (form 4.73) to publish a Notice in the Gazette and also send it to all creditors known to you or whose names and addresses could be obtained by you by making reasonable enquiries. The Notice may be published and given before the completion of the sale arrangements but must be published and given no later than 28 days after completion.
Second exception: Immediate application to court for permission
You can get permission from the court to use the prohibited name. You should apply to the court within 7 business days of the liquidation. If you apply within that time, you may carry on using the prohibited name for 6 weeks from the date of the liquidation or until the court decides whether to grant you permission, whichever is the earlier. It is important that your application is heard within the 6 weeks; otherwise the restriction will again apply to you. The Court is only likely to grant permission in exceptional circumstances.
Third exception: Previous use of name by another company or business
The restriction on the re-use of a prohibited name does not apply to you if you are a director of another company that has used a prohibited name continuously for 12 months up to the date of the liquidation of the liquidated company. Your company must have been actively trading during the whole of the 12 months up to the date of the liquidation of the liquidated company, and must have used the name during the whole of that period.
Penalties
If you contravene section 216 of the Act, you are committing a criminal offence. You may be prosecuted by the Department for Business Innovation and Skills and could go to prison if you are convicted. In addition, under section 217 of the Act you could be made personally liable for the debts incurred during the time that you were involved in managing a business using a prohibited name, even if it was a limited company. This could happen whether you are prosecuted under section 216 or not.
Person who helps someone else contravene section 216
Even if you are not contravening Section 216 of the Act, you will be personally liable for the debts of a company if you agree to be registered as a company director and/or are involved in managing a business and you act on instructions from someone you know is contravening section 216. This is because you are helping someone to commit a criminal offence by contravening section 216.
Information provided by the Insolvency Service