The re-use of a Company Name: Section 216 – Kitsons
Can a Liquidated Company Name be Reused?
Re-using a company name or a “prohibited name” is an issue that arises when a company enters into an insolvent liquidation and its director, shadow director (and even a person involved in the management of that company) wants to set up a company with the same or substantially similar name. These provisions are set out in Section 216 and 217 of the Insolvency Act 1986.
Where a company has entered into insolvent liquidation, Section 216 simply prohibits the re-use of the dissolved company’s name (or a similar name) by the new company, where the old and new companies have common directors, for a period of 5 years starting with the date the company entered into liquidation.
The prohibited names provisions should be at the front of a director’s mind where he or she is contemplating placing their company into liquidation but still intends to continue the business by using the same or similar company name. Careful consideration is required as Section 217 provides for some significant sanctions:
A breach of Section 216 is a criminal offence and punishable by a fine, imprisonment or both.
The common directors (including shadow directors and/or persons involved in the management of the new company) could be held personally liable for the new company’s debts.
Further, if the old company’s liquidator has discovered a breach of the prohibited names provisions, they could report the breach to the Insolvency Service who may consider it grounds for prosecution and/or directors’ disqualification.
Thankfully, there are statutory exceptions to the use of a prohibited name. These are:
1. Where the assets of the old company are sold by its liquidator to the new company, formal notice can be given to all creditors of the old company including a notice placed in the London Gazette. Such notice must be given within 28 days of completion of the purchase of the old company’s assets. However, this notice cannot be given by a person already in breach of Section 216. Timing is crucial.
2. The new company’s directors apply for permission from the Court to use the prohibited name. The application must, however, be made within 7 days from the date on which the old company went into insolvent liquidation.
3. If the new company has been established and traded with the old company’s name (or similar) for at least 12 months prior to the old company’s insolvent liquidation, then no permission of the Court is required.
Quick action is required to avoid the potentially severe penalties for a breach of the prohibited names provisions. If you are speaking to an insolvency practitioner about the possibility of placing your company into liquidation but wish to continue trading, they should refer you to a suitably qualified insolvency solicitor for specific advice on whether it is an issue and if so, whether you can use one of the statutory exceptions.
Please contact our team if you would like further and more specific advice on these issues.