Blog post image Reuse of a company name

Posted by alisoncollier - November 28, 2019 2:38 pm Re-use of a company name

To some directors the name of company is important and could even be their own name. But did you know that if a company enters into a formal insolvent procedure that name may become prohibited and you will no longer be able to trade using that name?

The Law

Sections 216 and 217 of the Insolvency Act 1986 were created to try and combat the issue of phoenix companies being formed using the same name.

The restrictions will apply to you if you have been a company director at any time during the 12 months before the company enters liquidation. 

Basically the law states that for five years from the date of liquidation you will not be able to be a director, or directly or indirectly take part in the promotion, formation or management of a company with the same or similar name to the liquidated company. 

You will also not be able to part in carrying on a business, either directly or indirectly, using the prohibited name.

Prohibited Name

This can include, the registered name, any other name the company was known by, or a name so  similar to suggest an association, (and once again this is at any time in the 12 months prior to the liquidation).

Implications

There are some heavy penalties if you are considered to be trading under a prohibited name:

  • Prosecution, which if convicted you could be imprisoned and/or fined
  • Disqualified from acting as a company director
  • Become personally liable for the debts incurred by the company with the prohibited name

A word of caution, these penalties also apply if you are taking instruction from someone you know cannot use the prohibited name. 

Exceptions

The Insolvency (England and Wales) Rules 2016 do provide three exceptions to the restrictions.

  1. The whole or substantially the whole of the company is sold or acquired from the liquidator, administrator, administrative receiver or supervisor.  Also before using the name the required legal notice is given.   (This is not the responsibility of the Insolvency Practitioner.) 
  2. The director applies for permission from the court within seven business days from the date the company went into liquidation.  The name can be used until either the court decides or 6 weeks whichever is soonest. 
  3. If you already involved with a company or businesses which has used a similar name or been known by a name similar to the liquidated company  for the whole of the 12 months before the date of liquidation and it has traded for this entire period.

Due to the serious consequences we at mfw Insolvency & Corporate Recovery would always recommend you seek legal advice if you are in any doubt regarding prohibited names.

For more information please contact us.