The re-use of company names: Danger Beware

 

Directors of insolvent companies must exercise extreme caution when re-using either the corporate or trading name of a company that has just gone into insolvent liquidation.  Directors face the risk of claims being made against them by liquidators for personal liability in respect of the debts of NewCo, and/or the prospect of criminal charges.

The Insolvency Act 1986, section 216 prohibits the re-use of a name by which a company was known by in any period in the 12 months prior to entering into insolvent liquidation.

Who does the prohibition apply to?

It applies to any person who was a director or shadow director in the 12 months prior to the insolvent liquidation.

That person can not then become a director or be concerned in the formation or management of a new company (“NewCo”).

How long does the prohibition last for?

The prohibition lasts for a period of 5 years.

In practical terms when is there likely to be a problem?

The re-use of the company name, in the absence of either filing the appropriate notice or receiving the permission of the Court, may amount to a criminal offence and can therefore arise at any point at which the name is re-used.

The personal liability, of the directors, for the debts of NewCo will often arise upon the insolvency of NewCo.

Personal liability for the debts of the insolvent company

Section 217 Insolvency Act 1986 creates a personal liability for any person who re-uses a company name in prohibited circumstances.  Claims will often arise when NewCo itself enters insolvency and will typically be brought by the liquidators of NewCo or any person that has purchased that right of action.  

Claims can also be brought by creditors to NewCo independently of NewCo or their liquidators.

What can a director do to comply with section 216?

An application can be made to Court for permission to reuse the prohibited name but must be done in accordance within very strict time periods of the insolvency of NewCo.

Alternatively, a Notice can be issued in accordance with the Insolvency Rules 1986 Rule 4.228.

When may claims be made against a director?

Extreme care must be taken to comply with the strict time frames in making either an application to court or filing the appropriate notice.

If a director falls outside those stipulated time frames or the notice is otherwise defective a claim may be issued as described above.

Can the director seek redress from professional advisers?

It is very common for a director to have received advice from either a solicitor or accountant, in filing the relevant Notice.

If the blame for the the defective Notice lies with the conduct of their professional adviser a claim may be brought against them for indemnity.

 

To discuss the implications and consequences arising out of the re-use of a company name contact specialist insolvency lawyer Stephen Chinnery on 07460 005 769 or by email at stephen@litigatorlawyers.co.uk