CVL, Insolvency, Insolvency Practitioner, Wrongful Trading|

Restrictions on a company name after Liquidation

When a company enters insolvent liquidation (Creditors Voluntary Liquidation or Compulsory Liquidation), insolvency legislation prevents the same name as that of the insolvent company, or any name which is similar being used again by the company directors.

The relevant provisions were introduced to tackle individuals carrying on the same business or trading successively through a series of companies where each becomes insolvent and when this happens, the insolvent company’s business, but not its debts, are transferred to a new, ‘phoenix’ company. 

The process is commonly referred to as “phoenixing”, or “phoenixism” and the penalties can be severe.  The restrictions apply to anyone who has been a director of a company at any time in the 12 months before it goes into insolvent liquidation. 

However, there are certain exceptions to the rule and further information is provided below.

The restrictions

If you have been a director of a company, at any time during the 12 month period before it enters into insolvent liquidation, you are automatically prohibited from being a director of, or directly or indirectly being concerned in or taking part in in the promotion, formation or management of a company with the same or similar name to the liquidated company, for a period of 5 years.

This name (or similar name) is known as a prohibited name, and may include:

  • the insolvent company’s registered name at any time during the previous 12 months;
  • any other name that the insolvent company, or part of the company, was known by at any time during those 12 months. This may include, trading names including registered trademarks or brand names whether owned by the liquidated company or not;
  • any similar name that suggests an association with the liquidated company.

If you are worried that you might be using a prohibited name, then we strongly recommend that you seek professional advice about your position.

When a prohibited name can be used (the exceptions)

There are three exceptions set out within the Insolvency (England and Wales) Rules 2016:

  • If a new company purchases the whole, or substantially the whole of the business in liquidation then a similar name may be used. In addition, notice of the purchase must be sent to all known creditors of the insolvent company, and it must be advertised in the London Gazette within 28 days of the sale being completed.
  • Where a new company is established, that has not purchased the whole or substantially the whole of the business of the insolvent company, that new company can make an application to court within 7 days of the liquidation. The name can be used for a six-week period following the liquidation, or until the court has heard the application (whichever is the earlier).
  • If a previously established company has been trading continuously for at least 12 months prior to the liquidation of the insolvent company, and whilst trading has been using what would otherwise be a prohibited name, an exemption may apply.

If in any doubt as to whether an exemption applies, you should seek legal advice.

The consequences for contravening the rules

It is a criminal offence to contravene Section 216 of the Insolvency Act 1986 (“IA 1986”) and if you act in contravention of this section, you are liable on conviction to imprisonment and / or a fine.  In addition, Section 217 of the IA 1986, provides that a person who does so is personally liable for any debts of the company incurred during the period of that involvement.

Help from a Licenced Insolvency Practitioner

Keywood Group is a Licenced Insolvency Practice with offices in Birmingham and London.  Our team has over 20 years’ experience in advising businesses on their options and dealing with company closure. 

It is always advisable to think carefully about forming a new company and if you are proposing to use a prohibited name, which exception you intend to rely upon.  Our experienced team has significant experience in working with directors in complex situations and can provide you with clear, transparent advice to ensure that any new venture is fully compliant.

If you would like any further information, please contact us for a no obligation chat.

 

Leave a Reply

Your email address will not be published.

Close Search Window