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24 March 2017 0 Comments
Posted in Dispute Resolution, Opinion

‘What’s in a name?’ Reusing a company name after insolvency

Posted by , Partner

To quote Shakespeare, “That which we call a rose, by any other name would smell as sweet”, which suggests that names are of limited importance and do not really affect what things are. However, in business a name is all-important and it is not uncommon for directors of insolvent companies to want to continue trading using another company with the same or a similar name.

This makes perfect sense in terms of preserving branding, reputation and reach. But what are the rules concerning the re-use of a company name after liquidation, and what restrictions apply?

Current legislation

The laws concerning the re-use of a company name after insolvency are strict, and non-compliance is a criminal offence punishable by fines or even prison.

The general rule is that a successor ‘phoenix’ company cannot re-use the original or similar registered name of an insolvent company as that name has become prohibited. This restriction will apply to any individual who was registered or acted as a director of the insolvent company at any time during the 12 months immediately before the liquidation. They will also be prevented from acting as a director or being involved with another company trading under a prohibited name.

Exceptions

There are however three exceptions to the general rule:

  1. An individual can apply to the court for permission to act as a director or be involved in a business using a prohibited name. The time limit for such an application is short, the applicant needs to act quickly to make their application within seven business days of liquidation of the original company. The court will consider the new company’s financial position and will only grant permission where it is satisfied that the new company is not also at risk of becoming insolvent.
  2. Alternatively, if a successor company acquires the whole, or majority of an insolvent company from the office holders, and wishes to trade using a prohibited name, a notice can be sent to the creditors of the insolvent company and advertised in the London Gazette.  Again the time limit here is tight, and this has to be done within 28 days of completion of the purchase.
  3. If another trading company was using the prohibited name in the 12 months prior to liquidation, individuals that were directors of the insolvent company, who become or remain involved in the successor company, could use this prohibited name. This is provided that the other company was incorporated and trading in that period. For example, if there were a number of companies consisting of Joe Blogs Builders Roofing Limited, Joe Blogs Builders Driveways Limited and Joe Blogs Builders Fencing Limited and one of these became insolvent, the other companies would be entitled to continue using the “Joe Bloggs Builders” name provided they were trading for at least 12 months before the liquidation. 

Actions for directors

If you are a director and want to be involved with a company that intends to use a prohibited name, you need to act quickly. It is worth bearing in mind that any individual found guilty of using a prohibited name without permission will also be personally liable for any debts incurred in running the new business. Any errors could be costly and for this reason, if you would like to use a prohibited name it is always best to seek legal advice as soon as possible, ideally before the original company goes into liquidation.

 

If you would like more advice surrounding company names and insolvency, contact the Dispute Resolution team on

01225 730 100     Email uscdr.enquiries@roydswithyking.com

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