If you are a director of a company that has gone into Liquidation (or might go into Liquidation) and you are now involved (or are considering becoming involved) in another company with a similar/same name then be aware of the provisions of Section 216 of the Insolvency Act 1986.

Whilst it is possible to re-use the same or similar name of a liquidated company it can ONLY be re-used if one of the “exceptions” set out below applies.  If none of the “exceptions” apply then you will be in breach of section 216 of the Insolvency Act 1986 and could be liable to a fine, imprisonment, director disqualification proceedings and will be “invited” by the Investigation & Enforcement Services of the Insolvency Service to change the new company name and / or resign as a director of the new company.  All of these penalties can so easily be avoided if one of the following is undertaken or applies at the time that the “old” company goes into Liquidation; these are known as the “Excepted Cases”:

Excepted cases

  1. Where a “new company” acquires the whole or substantially the whole of the business of an insolvent company under arrangements made by an Insolvency Practitioner acting as Administrator or Liquidator or the Supervisor of a Voluntary Arrangement, the new company must serve notices (in a prescribed form) on all of the creditors of the liquidated company providing details of the old company in liquidation, the new company, and the names of the directors.  A similar Notice must also be placed in the London Gazette.  All of this must take place within 28 days from the completion of the purchase of the assets / business of the liquidated company from the Insolvency Practitioner.
     
  2. If there is no purchase of assets of the company in liquidation but you want to set up a new company and re-use the liquidated company’s name, or a similar name, then an application to the court must be made not later than 7 days from the date the company went into liquidation and leave of the court must be granted no later than 6 weeks from that date.  Even if the application is made it does not mean that the court will grant the application. The court will consider issues such as the financial standing of the new company and will want to know who will be responsible for managing it and its finances.
     
  3. The name of an existing company which is similar to the name of an insolvent company can continue to be used if:
    a) the existing company had been known by that name for the whole of the period of 12 months ending with the day before the company with a similar name went into Liquidation; and
    b) the existing company had not at any time in those 12 months been a dormant company.
    This is to cover the position where you have group companies known by similar names.  If one goes into Liquidation the others should not have to change their names.

Please note that Companies House will not, in any event, allow a “new” company to use the same name already being used by another company.  So even having regard to the above if you want to use the same name as a company that is in insolvency the Insolvency Practitioner will firstly have to deal with changing the name of the Insolvent Company.  However in many cases it is “similar” names that people want to use that give rise to claims arising under Section 216 of the Insolvency Act.

There are many cases of people not having complied with the excepted cases as set out at (1) and (2) above and they find themselves many years later on the receiving end of a letter from the Investigation & Enforcement Services of the Insolvency Service claiming that they have breached the provisions of Section 216. 

At Sydney Mitchell we can assist you in preventing such claims arising by assisting you with dealing with Notices or Applications to the Court as set out at (1) and (2) above or we can advise and assist you if you find yourself in breach and on the receiving end of a letter from the Investigation & Enforcement Services of the Insolvency Service. 

For further information please call Leanne Schneider-Roseon 0121 698 2200 or email: l.schneider-rose@sydneymitchell.co.uk

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