The decision in Maxima Creditor Resolutions Ltd v Fealy & Anor is a useful reminder that prohibited name cases are highly fact sensitive. It does not weaken the rules on phoenix companies or reusing company names after liquidation. Instead, it shows that directors may have a defence where an established company has genuinely traded under the relevant name before the first company entered insolvent liquidation.
For directors, the case is important because it gives practical meaning to the existing company exception under rule 22.7 of the Insolvency (England and Wales) Rules 2016. It also shows why timing, trading evidence and accounting records can be central to any dispute about reusing a company name after liquidation.
The case should be read alongside the wider rules on phoenix companies and director disqualification. A successor company is not automatically unlawful, but directors need to be able to show that the structure, name use and trading position comply with the statutory rules.
What was Maxima v Fealy about?
Maxima Creditor Resolutions Ltd brought a claim against two directors connected with McFee Interiors Limited and McFee Limited. McFee Interiors Limited had entered creditors’ voluntary liquidation. McFee Limited also used the name McFee, which was treated as a prohibited name for the purposes of section 216 of the Insolvency Act 1986.
- Maxima had taken assignments of debts and sought to make the directors personally liable under section 217 of the Insolvency Act 1986.
- The argument was that the directors were involved in a company using a prohibited name after the liquidation of McFee Interiors Limited.
The directors relied on the third excepted case under rule 22.7. Their position was that McFee Limited was not a newly created phoenix company, but an existing business that had already been trading under that name for the required period before liquidation.
What is the existing company exception?
The existing company exception is one of the three principal exceptions to the section 216 prohibited name restrictions. It applies where a director is involved with an established company that has used the same or a similar name for the whole 12 months before the liquidation of the first company, provided that the established company has not been dormant during that period.
- Statutory guidance explains that the company must have used, or been known by, the name continuously for the 12 months before liquidation and must have traded for the whole of that period.
- It also confirms that the exception cannot be used if the company with the similar name has been dormant at any time during the relevant 12 months.
This is different from the business purchase notice route and the court permission route. Directors who are unsure which exception may apply should review the section 216 prohibited name rules before continuing to trade.
What did the court decide?
The court dismissed Maxima’s claim. It accepted that McFee Limited had been actively trading from 16 November 2012, more than 12 months before McFee Interiors Limited entered creditors’ voluntary liquidation on 20 November 2013. The court found that McFee Limited had not been dormant during the relevant period.
- The directors were therefore able to rely on the rule 22.7 exception.
- On the facts, they were not personally liable under sections 216 and 217 of the Insolvency Act 1986 for the assigned debts pursued by Maxima.
This makes the case particularly useful because it is not another example of directors being found liable. It is a case about the evidence needed to show that a company was genuinely established and active before the liquidation of another company with a similar name.
Why was the timing important?
Timing was central. Commentary on the decision notes that McFee Limited had been incorporated and had begun trading one year and six days before the liquidation of McFee Interiors Limited. That small margin mattered because the exception requires the relevant company to have been known by the name and not dormant throughout the whole 12-month period before liquidation.
If the second company had been dormant at any time during that 12-month period, or had not yet started trading, the directors may not have been able to rely on rule 22.7. The case therefore shows that directors should not assume that an existing company will automatically be protected simply because it was incorporated before liquidation.
The question is not just whether the company existed. The question is whether it was actively trading and not dormant throughout the relevant period.
What records helped the directors?
The court considered evidence that McFee Limited had been actively trading and undertaking significant accounting transactions during the relevant period. This is important for directors because the defence is evidence led. A company may say that it was trading, but the court will look at the records.
Relevant evidence may include
- accounting records,
- invoices,
- bank statements,
- contracts,
- staff records,
- customer communications,
- VAT records,
- Companies House filings; and
- board records.
Where a director needs to show that a company was not dormant, unsupported assertions are unlikely to be enough.
Our guide on evidence to defend phoenixism allegations explains the types of records that may assist where a liquidator, creditor, HMRC or the Insolvency Service questions a successor business.
Does Maxima mean directors can safely use a similar name?
No. The case should not be treated as a general permission to use a similar name. It succeeded on specific facts. The directors were able to rely on an exception because the second company had already been trading and was not dormant throughout the full 12-month period before liquidation.
In many cases, directors will not be able to rely on rule 22.7. A company formed shortly before liquidation, a dormant company, a company that only begins trading after liquidation, or a company that cannot evidence real trading activity may still create serious risk.
Where the exception does not apply, directors may need to consider the business purchase notice route, a court permission application, changing the name or ceasing involvement in management. If the name has already been reused, our guide on what happens if a director has already reused a company name explains the immediate issues to consider.
How does the case affect section 217 personal liability?
Section 217 can make a director personally liable for relevant debts where section 216 has been breached. Maxima is important because it shows that section 217 liability may be avoided if a director can bring themselves within one of the statutory exceptions.
In Maxima, the court found that the rule 22.7 exception applied. That meant the directors were not personally liable for the debts claimed. The case therefore gives directors a practical example of how a carefully evidenced exception can defeat a section 217 claim.
For the broader position, see our guide to personal liability for phoenix company debts, which explains how section 217 can apply where section 216 has been breached.
How does the case relate to director disqualification?
Maxima was not primarily a director disqualification case. It was a prohibited name and personal liability case. However, the facts that arise in a prohibited name dispute can also be relevant if the Insolvency Service later reviews director conduct.
A properly established trading company, supported by contemporaneous records, may help answer an allegation that the new business was an abusive phoenix company. By contrast, poor records, late formation, dormant status, unclear asset transfers or unpaid HMRC debts may create wider questions about director disqualification risk.
Directors who are contacted by the Insolvency Service should review the prohibited name issue alongside any wider Insolvency Service enquiries about conduct, creditor losses and company records.
What should directors take from Maxima v Fealy?
The main lesson is that the prohibited name rules are not just technical. They depend on precise timing, company status and evidence of real trading. A director who wants to rely on the existing company exception should be able to show that the second company used the name continuously and was not dormant at any point during the full 12 months before liquidation.
The second lesson is that a defence should be prepared from documents, not memory. The stronger the records, the easier it may be to answer a creditor, liquidator or assignee claiming personal liability.
The third lesson is that directors should take advice before assuming that a similar name can continue to be used. The cost of correcting the position early is usually far lower than defending a personal liability claim after debts have been incurred.
How can FWJ help?
FWJ advises directors on prohibited company names, phoenix company risk, section 216 and section 217 claims, HMRC concerns and director disqualification. We can help assess whether an exception may apply, what evidence is available and how to respond if a claim has been threatened.
If you are buying assets, continuing a business after liquidation or using a similar name, early advice can help clarify whether the structure is lawful and what steps are needed to reduce personal risk.
