Last week we reported on, what was termed by the Supreme Court as, “A Momentous decision,” that laid down the duties of directors. However, coming quietly behind it was another decision that could also have huge implications for directors.
When a company goes into an insolvent liquidation, its name becomes prohibited and there are various restrictions surrounding using a name (or brand) that is so similar that it may cause confusion to the public. For example, if a company was known as “Big Ruined Industry Limited,” any director setting up a successor company and calling it (say) “Big Ruined Industry (2022) Limited” would be in breach of using a prohibited name.
What directors are all too often unaware of is a breach of the prohibited name provisions is a criminal offence and a director could be held personally liable for the debts of the company. This is what has happened in the recent Court of Appeal decision of PSV 1982 Limited -v- Langdon  EWCA Civ 1319.
In this case, Mr Langdon was director of Discovery Yachts Limited (“DYL”) and Discovery Yachts Group Limited (“Group”). A customer commenced legal proceedings against both companies, resulting in DYL going into liquidation. Some two years later, Group went into administration and then subsequently into liquidation. The customer claimed Mr Langdon was in breach of using a prohibited name and, as a consequence, was personally liable for their claim.
The principal ground of defence was that it is unjust for someone (Langdon) to be bound by a judgment in proceedings (that were against DYL and Group) in which he had not been heard, or able to mount a defence. In dismissing this argument, the Court of Appeal said the criminal sanctions imposed by breaching the provisions of re-using a prohibited name prevailed and so, it followed, any award must do likewise.
Mr Langdon now finds himself personally liable for some £1.6 million with his right to appeal being rejected.
Legislation does provide for certain exceptions that enable the re-use of a prohibited name and, with the number of “Phoenix” liquidations steadily rising, directors should ensure they follow set procedures to ensure they do not fall into the same trap as Mr Langdon. The courts view is those set procedures are so straight-forward, there is no room for excuse if they are not followed correctly.
If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to email@example.com. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.