The decision in PSV 1982 Ltd v Langdon is an important warning for directors who are involved in a company using the same or a similar name to a company that has gone into insolvent liquidation. It shows how a breach of the prohibited name rules can move beyond a technical issue and become a serious personal liability risk.
The case should not be read as saying that every phoenix company is unlawful. A properly structured business rescue or asset purchase may be lawful. The risk arises where the prohibited name rules under sections 216 and 217 of the Insolvency Act 1986 are not dealt with properly, particularly where a director continues to be involved in the management of a company using a restricted name.
For directors considering a new company after liquidation, the case is a practical reminder to check the rules on reusing a company name after liquidation before trading continues under a similar identity.
What was PSV 1982 Ltd v Langdon about?
The case arose from the Discovery Yachts group of companies. Discovery Yachts Limited went into insolvent liquidation. The director was also involved in Discovery Yachts Group Limited, which used a name that included “Discovery Yachts”.
A judgment debt was later obtained against Discovery Yachts Group Limited. PSV 1982 Ltd, as assignee of the debt, sought to recover the debt personally from the director under sections 216 and 217 of the Insolvency Act 1986.
The central issue was whether the director could be personally liable for the company’s debt where he had been involved in the management of a company using a prohibited name. The case therefore sits directly within the wider FWJ guidance on phoenix companies and director disqualification, although PSV itself is primarily about section 217 personal liability.
Why did the prohibited name rules matter?
Section 216 of the Insolvency Act 1986 restricts certain former directors of a company in insolvent liquidation from being involved in another company or business using the same or a similar name for five years, unless an exception applies or court permission is obtained.
- The aim is to protect creditors and the public from the confusion and risk that can arise when a business appears to continue under the same identity after insolvency.
- Government guidance explains that the rules can apply even where the failure of the first company did not involve misconduct or dishonesty.
This is why directors should not treat name reuse as a branding issue only. If the same trading style, brand, website or company name is used after liquidation, the director should consider whether the name is a prohibited name and whether one of the statutory exceptions applies.
What does section 217 Insolvency Act 1986 do?
Section 217 of the Insolvency Act 1986 is the provision that can make the risk personal. Where a person is in breach of section 216, section 217 can make that person personally responsible for the relevant debts of the company using the prohibited name. Liability can be joint and several with the company and any other liable person.
In practical terms, a director who assumes that the new company will carry the risk may be wrong. If section 216 has been breached, creditors may be able to pursue the director personally for relevant debts incurred while the prohibited name is being used.
Our separate guide on personal liability for phoenix company debts explains section 217 in more detail.
What did the Court of Appeal decide?
The Court of Appeal considered the operation of section 217 and the way in which a company debt could be established against a director.
- It held that where the company’s liability had already been established in proceedings against the company, that could be sufficient to establish the existence of the company’s liability for the purposes of a later claim against the director under section 217.
- The Court of Appeal also considered the timing of the relevant debt. In broad terms, the issue was whether the liability had been incurred before or during the period when the prohibited name was being used. That timing point matters because section 217 focuses on relevant debts and liabilities incurred at a time when the director was involved in management in breach of section 216.
The practical effect is that directors cannot assume that they are protected simply because the contract giving rise to a later debt was entered into before the prohibited name problem arose. The timing of the breach, liability and judgment may all need careful analysis.
What does PSV mean for directors?
The case makes three practical points for directors.
- First, section 216 can apply to existing companies as well as newly formed companies. A director may be at risk if they continue managing a company that already exists but uses a prohibited name after another company enters insolvent liquidation.
- Second, personal liability under section 217 can be substantial. The director may face a claim for company debts even though they expected the liability to remain with the company.
- Third, the safest time to deal with the issue is before the name is used, or immediately when the liquidation happens. If the director has already reused a name, our guide on what happens if a director has already reused a company name explains the steps that may need to be considered.
Does PSV mean all phoenix companies are unlawful?
No. The case is not authority for the proposition that all phoenix companies are unlawful. A successor company may be lawful if the business or assets are acquired properly, the directors comply with the statutory exceptions, creditors are not misled, and the company does not use a prohibited name unlawfully.
The case is better understood as a warning about failing to address the prohibited name rules. A director may have a legitimate commercial reason for continuing a business, but still face personal liability if the legal steps around name reuse are not followed.
Directors planning to acquire assets from an insolvent company should also consider our guide on buying assets from an insolvent company, because valuation, documentation and creditor transparency can be important in showing that a rescue was properly structured.
How does the case relate to director disqualification?
PSV was primarily about personal liability under section 217. However, the facts that give rise to prohibited name liability may also be relevant to director disqualification risk in some cases.
- If a director continues a business after liquidation without dealing with name reuse, creditor transparency, asset transfers or HMRC debts, those facts may be considered as part of a wider review of conduct.
- That does not mean that disqualification is automatic. The question is whether the overall conduct makes the director unfit to be involved in company management.
Directors who have received contact from the Insolvency Service should consider taking advice on both Insolvency Service investigations and director disqualification risk.
What should directors do before using a similar company name?
Before using a same or similar name, directors should identify whether section 216 applies, whether the proposed name is a prohibited name, and whether one of the statutory exceptions is available. This should include checking registered company names, trading names, websites, brand names and customer-facing descriptions.
The director should also preserve evidence of any insolvency practitioner advice, court permission application, creditor notice, Gazette publication, asset valuation and board decision. That evidence may be important if a creditor, liquidator, HMRC or the Insolvency Service later questions the transaction.
Our page on evidence to defend phoenixism allegations explains the records that may assist where a director needs to show that a successor company was properly structured.
What if HMRC is also involved?
Where the old company has left unpaid tax debts, HMRC may look closely at any successor company. The prohibited name rules are separate from HMRC’s tax recovery powers, but the same factual pattern can raise more than one risk.
In repeated insolvency cases, HMRC may consider joint and several liability notices or other enforcement measures. Our guide to HMRC phoenixism and joint and several liability notices explains those tax-focused risks.
How can FWJ help?
FWJ advises directors on prohibited name rules, section 216 and section 217 personal liability, phoenix company concerns, HMRC claims and director disqualification. We can help directors assess whether a name is prohibited, whether an exception may apply, and how to respond if a creditor or liquidator is seeking to impose personal liability.
If you are concerned about personal exposure after using a similar company name, the key step is to review the facts, documents and timing carefully. Section 217 issues are technical and fact-sensitive, and early advice can help identify the safest response.
