How often does the company name become the brand that your customers know? Indeed, if you were to assess the value of the company assets, what value do you consider placing on that brand in a going concern scenario?
Taking the above into consideration, what then happens if the company (for any reason) has to go into an insolvent liquidation and, because you see a benefit in saving the business, you wish to set up a new company, using that brand (ie company name)?
Sections 216 & 217 Insolvency Act 1986 (“the sections”) provide that when a company enters into an insolvent liquidation then a person who was director (whether de jure, de facto or “Shadow”) of that company may not re-use that “Prohibited name. Section 216 imposes a strict liability criminal offence while section 217 creates a personal (civil) liability on those who breach these provisions. Placing the new company under the directorship of your spouse or relative does not circumvent these strict provisions either as a person who knows at the time there is a contravention of the prohibited name provisions can also be held personally liable.
The Association of Business Recovery Professionals recently lobbied the Government Insolvency Service for proposed changes to these provisions, to include companies entering into administration and those companies where a simple application has been made for their striking off.
The aim of the sections is to prevent “Phoenix” companies from causing a disadvantage to creditors where directors seek to offload the company debt and enjoy a freedom to trade going forward. When you compare the corporate figure for 2021/22 (524,046 strike offs versus 22,395 insolvent liquidations) then it is understandable why the current provisions require some reform in order to protect creditors.
So, what can you do if faced with this scenario?
Contravention of the above provisions cannot be retrospectively remedied so seek advice at the earliest possible time.
Secondly, there are exceptions that can be relied upon. However, given the strict liability status of these sections, any error in following those exceptions can lead to a contravention.
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.