This helpful article address the key points around reuse of a company name following a liquidation. It is vital to get it right - failure to do so risks significant personal money claims against directors.
Can I start a new company with the same name?
Yes, this is possible in certain circumstances, and it happens quite often. A company may have gone into liquidation for any number of reasons, and not all of those are due to a fault on the part of the director. Sometimes there is a reasonable business that can be salvaged from the liquidation, and a director may have built up years of goodwill and contacts. It makes sense for them to be able to continue the viable part of the business in the future.
However, insolvency legislation balances this against the need to protect the public. Understandably, trade creditors would be left in a difficult position if unscrupulous business owners could go on managing numerous companies, repeatedly shedding their debts by entering formal insolvency.
Can I act as a company director again following a liquidation?
As long as you haven’t been disqualified as a company director under the Company Directors disqualification legislation then you can act as a director again in the future.
You can’t act as a company director if you are currently bankrupt or subject to a bankruptcy restriction order.
If you have been disqualified as a company director then unless you apply to the court for permission to act as a director of a particular company, you can’t act as a director for the period that you have been disqualified by the court. This can be anything between 2 and 15 years. If you do act as a director during that period or even direct somebody to act on your behalf, then there can be very serious personal repercussions, including a fine and/or a custodial sentence.
Can I reuse the name of my old company?
The starting point is that the reuse of a name of a company that has gone into insolvent liquidation is not allowed for a period of 5 years from the date of liquidation, unless an application is made to the court for consent, or the director and the company falls under one of the exceptions listed under Insolvency Act 1986.
- This legislation is particularly strict in order to protect creditors from being duped by directors into thinking that they are effectively dealing with the same company that owes them money, when in reality the company has ceased and that money is never going to be repaid.
- The consequences of breaching the rule are very severe. Any director in breach commits a criminal offence and may be imprisoned, or have to pay a fine.
- Creditors can also bring proceedings to make a director personally liable for the debts of the new company. It is therefore sensible to take advice and appropriate steps as soon as possible to ensure that you (and any other members of your company’s management) do not fall foul of the rule.
The exceptions to this rule are set out below:-
- The most common (and often easiest) exception is available where a new company is incorporated which purchases the whole (or substantially the whole) of the business of the company in liquidation from its liquidator. Provided that the director acts quickly, it is then usually possible to prepare a notice form to send to creditors and the London Gazette. This lets creditors of the insolvent company know that the name is being re-used and that the director(s) will be continuing to act in the new company, and protects the relevant director(s) from criminal or civil liability under the insolvency legislation. As the notice will be invalid if it does not include the information required at law – and as it needs to be published quickly – it is sensible to take advice before the company enters liquidation;
- It is also possible to reuse the name if the new business has already been known by the prohibited name continuously for at least 12 months before the liquidation. This can’t be a shelf company, but has to have been a fully trading company throughout the period; or
- Finally, if neither of those exceptions are available, a director can apply to court for permission to use the name. The director will need to provide information on why this is necessary, and prove it will not disadvantage creditors of either the old or the new company. This is the most involved method for re-using a company name, as considerable evidence is required for the application. Provided that a director takes advice early, it is usually not necessary to apply to court.
If you are a director who wants to reuse the name of a company in liquidation, we can help, but it is very important to take legal advice from an expert as soon as possible to avoid falling foul of these insolvency provisions. We very regularly assist directors in using any of the above routes to avoid breaching prohibited names legislation, and can deal with this very quickly and at proportionate cost. If you are in this position, or are considering reusing the name of a company in liquidation, then contact us to talk through your options. Whatever your situation, we can help.