Insolvent-company name ban widens to similar names and new sellers

If a company goes into insolvent liquidation, restrictions on reuse of its name by its directors apply unless an exception applies. The restrictions apply where a company is wound up by the court (compulsory liquidation) or voluntarily (creditors voluntary liquidation). A prohibited name covers the liquidated company's registered name, any trading name it used, and any similar name that suggests an association with itGOV. The last limb tracks section 216(2)(b) of the Insolvency Act 1986, which catches a name so similar to the liquidated company's name as to suggest an association. For 5 years following the liquidation the director must not be a director of a company that uses a prohibited name. The director must also not take part in the promotion, formation or management of a company that has a prohibited name. Nor may the director carry on, or be involved in the carrying on of, a business that uses a prohibited name.

The restriction bites directors and shadow directors involved with the company at any time in the 12 months ending the day before liquidation, whether or not formally appointed. Breach has three consequences: personal liability for the debts incurred during the breach under section 217 — joint and several with the company — plus prosecution (imprisonment or a fine or both) and disqualification from acting as a company director.

Three exceptions take the conduct outside the prohibition. The first is leave of the court. The second is the prescribed-circumstances route: where the business, including the name, is purchased from a liquidator, administrator or the supervisor of a company voluntary arrangement and the required legal notices are givenGOV. The widening to purchases from an administrator or CVA supervisor, alongside the liquidator, reflects the Insolvency Rules acquisition-of-business exception beyond court-ordered and voluntary-liquidation sales. The third is where the company the director is involved with has been trading using the same name as the liquidated company for at least 12 months before the liquidationGOV.

Directors who are or were in a liquidated company and are involved with, or planning to start, a company or business using the same or a similar name should therefore check which limb they sit in before trading: court permission, a qualifying purchase with notices, or a full 12 months' prior trading under the name. Otherwise the five-year bar runs, and debts incurred while in breach attach personally.

Legal basis: Insolvency Act 1986, sections 216 and 217.