Re-using a company name following insolvency: A restriction for company directors

When a company goes into insolvent liquidation, as a company director you can be restricted for five years from being involved in another company or business (including as a sole trader) with the same or similar name. This is to prevent you from carrying on the same business and taking on the insolvent company’s assets, management and goodwill without its liabilities.

It is important to know about this restriction as breaking it can be a criminal offence and civil liabilities may automatically apply. In the latter scenario, the court cannot limit your liability, even if you did not intend to break the restriction.

What are the legal exemptions to re-using the insolvent company’s name?

There are three scenarios where the restriction does not apply, and you can use an insolvent company’s name:

• When the new company has been known by the prohibited name for at least 12 months before the insolvent company goes into liquidation (this does not apply if the new company has been dormant at any time within those 12 months).
• When you apply to court for permission to be a director of the new company with the prohibited name. This must be done within seven business days from the start date of the insolvent company going into liquidation
• When the new company acquires the whole or substantially the whole of the insolvent company’s business (including the right to use the prohibited name) from the company’s liquidator, and you give notice to every creditor of the insolvent company. The notice must also be published in the London Gazette.

The third exemption is the most widely used, however it is vital that you give notice to creditors before operating in the new business.

If you are considering a liquidation of your company and would like advice on your director duties to ensure you don’t fall foul of the law, please contact Alexander Neale in the litigation and dispute resolution team on 01727 735650 or amn@debenhamsottaway.co.uk.