“My company is failing but there remains a viable core business that I want to save.” At PBC we are hearing this scenario on an increasingly regular basis
There are recovery options available to companies that are suffering from cashflow difficulties, such as a company voluntary arrangement. Unfortunately, circumstances may dictate the only viable option is to acquire the business from the company and start afresh. The most regularly used procedures for this are a pre-pack administration or simply acquiring the business from the appointed liquidator. However, the overall circumstances dictate which is the more appropriate option in the circumstances.
A difficulty with looking to re-start trading with a new company can be the name and/or brand. Section 216 Insolvency Act 1986 (“The Act”) states that the name of a company that is in an insolvent liquidation becomes a prohibited name. Directors have suggested looking at a pre-pack administration avoids this restriction. However, it is often the case an administration will exit into liquidation and accordingly, trigger Section 216 of the Act.
The provision relates to a name that is so similar that it may cause confusion to the public. It also includes a trading name or a simple use of initials. In the case of Re: Johnsons Electrical & Mechanical Services Limited (in liquidation) the court determined naming the acquiring company, “JEM (Group) Limited” was the re-use of a prohibited name, despite the director claiming “JEM” was part of his name – Jeremy.
There are exceptional rules to argue against the allegations of a breach to this provision and a director should always seek independent legal advice on the re-use of a prohibited name. More importantly, directors should ensure the steps required are strictly followed because the courts adopt a no tolerance stance towards the failure to follow correct procedures. As a warning, the penalty for getting this wrong has been demonstrated in the Johnson case where the director was held personally liable for the debts owed to the (2) claimant companies, resulting in his personal bankruptcy.
If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.