Restrictions on reuse of company name

Where a company goes into insolvent liquidation, section 216 of the Insolvency Act 1986 restricts its directors and shadow directors from being involved in another company with the same or a similar company name as the company in liquidation.  If this restriction is breached, the person concerned will be personally liable for certain debts of the second company (as well as anyone acting on their instructions).  A breach of section 216 may also lead to criminal liability.  As such, it is important for directors to take appropriate legal advice.

A name is prohibited in relation to someone to whom the restriction applies either if it is the same as the name of the liquidated company or if it is so similar as to suggest an association with that company.  Here, the court will make a comparison of the names of the relevant companies in the context of all the circumstances in which they were actually used or were likely to be used, the types of products/services dealt in, the locations of the business, the types of customer dealing with the companies, and those involved in the operation of the two companies.

Where the section 216 restriction applies, the director needs to obtain court permission to act in a manner that is otherwise prohibited by section 216, except in two other situations.  The first of these situations is where the insolvent company’s business is sold to a second company under arrangements put in place by the liquidator and notice is given to creditors of the insolvent company before the person acts in contravention of section 216.  The other situation is where a second company that has a prohibited name has been known by the prohibited name for at least 12 months before the insolvent company goes into liquidation.

Where it is necessary to apply to court for permission, this needs to be done within 7 business days from the start of the insolvent company’s liquidation.  If this is done, the applicant may act despite the section 216 restrictions between the start of the liquidation and the earlier of either the day falling 6 weeks after the start of the liquidation or the day on which the court decides the application for permission.

For further information on insolvency law related issues please contact Christopher Buck, Associate Partner and Solicitor, on 01908 660966 / 01604 828282 or by email at Christopher.Buck@franklins-sols.co.uk.