In many instances where a company has been liquidated and the directors are setting up a new business, they want to use the same or similar company name.
The Insolvency Act, 1986, places severe restrictions on using the same trading name after liquidation, and directors could face serious repercussions if they fall foul of the rules.
There are however instances where using a previous trading name can be done.
Why use the same trading name after liquidation?
It’s understandable that directors might wish to use the same or a similar company name in order to retain goodwill built up over the years by the “old company”. It can help the new business get off the ground, without having to worry about getting the brand name known and recognised.
What is the issue?
The big issue for the authorities is controlling those directors who have increased creditor losses in the liquidated company where this is via fraudulent activity, deliberate misconduct or negligence.
This can be a serious issue especially to protect the ongoing protection of consumers and customers.
What does The Insolvency Act say about reusing a trading name after liquidation?
Section 216 of the Insolvency Act, 1986 says:
- If a company has entered insolvent liquidation, the name it was known by at the date of liquidation, and during the previous 12 months, becomes ‘prohibited’ and cannot be reused
- The same rule applies to any similar name that suggests there is a connection to the liquidated company, those registered with Companies House, and trading names
- These rules apply to company directors, owners, or officers of the company, who open a new business, whether or not it is incorporated, for a period of five years following liquidation
What are the potential outcomes of using a prohibited name?
There are three potential serious repercussions if you use a prohibited name:
- A fine
- Imprisonment
- Personal liability for the debts of the new company
Are there any situations where the previous name can be used?
Yes – it is possible to reuse a company name in the following situations:
- The liquidator sells the company
If the business, or a substantial part of the business, is sold on by a licensed insolvency practitioner, directors might be able to reuse the name. Directors would have to provide legal notice of the purchase to creditors of the old company within 28 days and notify the London Gazette.
- Apply to the court for permission
A court application must be made within seven days of liquidation. Directors will need to demonstrate that the new company has a secure financial base from which to operate.
- Use a company that has been trading with a similar name for over 12 months
If you have been director of another company with the same or similar name, often a subsidiary company, and it has been trading continuously for 12 months prior to the old company’s liquidation, you may be able to retain the name. The company must have held the name for 12 months.
If you require further guidance on the reuse of a trading name after liquidation, or indeed you are looking to undergo the purchase of the business and trading name, it’s essential to make sure all of the compliance work has been done at the outset by someone well versed in the details of the Insolvency Act.
Many instances occur, whereby, business owners try to do it themselves to save a little money, but end up either exposing themselves to significant financial costs, or sometimes even breaking the law.
Get in touch
Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.
Please do get in touch with our team if you require advice on this subject.
Disclaimer
The information was correct at time of publishing but may now be out of date.
