Reusing a company name after liquidation
The prohibition on reuse of a liquidated company’s name was put in place to address the problem of ‘phoenixing’. The idea was to prevent a company running up debts, entering liquidation and then a new company being set up to continue trading whilst it appears to the outside world that nothing has changed.
To counteract phoenixing, for the five years following liquidation, any such director or shadow director may not be a director of, or take part in the “formation, promotion or management” of a company or business with a ‘prohibited name’, either directly or indirectly.
What is a ‘prohibited name’?
A ‘prohibited name’ is one that a company in insolvent liquidation has been known by in the previous 12 months before the date of liquidation. It also includes any name similar enough to appear that there is a link with the company in liquidation.
Consequences of Using a ‘Prohibited Name’ after liquidation
Using a ‘prohibited name’ is a criminal offence so the consequences can be severe. A person who doesn’t follow these exceptions is liable to imprisonment, a fine, or both. They may also be held personally liable for the debts of the new company which uses the ‘prohibited name’.
Someone who agrees to be a director of a company using a ‘prohibited name’, or is managing such a business and acting on the instructions of someone they are aware is contravening the laws against phoenixing can be liable too, not just the director of the insolvent company.
What are the exceptions?
There are 3 exceptions under the Insolvency (England and Wales) Rules 2016 which allow the ‘prohibited name’ to be reused:
- Purchase of business: if a new company purchases the whole, or substantially the whole of the business in liquidation then a similar name may be used. In addition, notice of the purchase must be sent to all known creditors of the insolvent company, and it must be advertised in the London Gazette within 28 days of the sale being completed.
- Court permission: the new company can make an application to court within 7 days of the liquidation. The name can be used until the earlier of 6 weeks following the liquidation, or until the court has heard the application.
- Existing use: if a company has been trading and using what would otherwise be a ‘prohibited name’ continuously during the 12 months before liquidation then the rules allow this name to continue being used.
I am buying the business from a liquidator – what steps should I take to reuse the name?
Purchasing the business of the insolvent company is perhaps the most common way that a director is able to reuse the name. These are the steps you would need to take before reusing the name:
- Purchase the whole, or substantially the whole of the business from the liquidator.
- Send notice to all known creditors of the insolvent company (on Rule 22.4 Notice) within 28 days of the sale being completed. Rule 22.4 Notice can be found here.
- Advertise in the London Gazette, also within 28 days of the sale being completed using Rule 22.4 Notice. See more information here. The cost for placing this advert is currently £79.40 plus VAT.
- Ensure that notice is given before the new company begins using the ‘prohibited name’.
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