Reviewed: 31st July 2017
If your company has been liquidated and you are setting up a new business, you may want to use the same or a similar company name. Section 216 of the Insolvency Act, 1986, places severe restrictions on this practice, however, and you may find yourself facing serious repercussions if you go ahead.
Below we look at the specifics of this legislation, but first, why might you want to reuse the name of your liquidated company?
Retaining a company name
Some directors prefer to use the same company name, or one that is very similar, to retain goodwill built up over the years by the old company. This encourages trade, and helps to ensure the new business gets off to a good start.
The problem for the authorities, however, is controlling those directors who have increased creditor losses in the liquidated company, either via fraudulent activity/deliberate misconduct, or through negligence.
This is a serious issue, and the ongoing protection of consumers and trade customers is paramount. So what does Section 216 of the Insolvency Act say about reusing a company name after liquidation?
Section 216 of the Insolvency Act, 1986
- 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 repercussions of using a prohibited name?
There are three potential outcomes if you use a prohibited name:
- A fine
- Imprisonment
- Personal liability for the debts of your company
Three exceptions to this rule
The liquidator sells your company
When your business, or a substantial part of the business, is sold on by a licensed insolvency practitioner, you may be able to reuse the name. You must provide legal notice of the purchase to creditors of the old company within 28 days, and place an advert to the same effect in the Gazette.
You apply to the court to use the name
A court application must be made within seven days of liquidation. You need to demonstrate that the new company has a secure financial base from which to operate, and an experienced team to guide future finances.
The name is already used by another company
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 other company’s liquidation, you may be able to retain the name. Additionally, the company must have held the name for 12 months.
If you require further guidance on the reuse of a company name, Real Business Rescue can provide professional advice. We have an extensive network of 75 offices offering confidential director support across the UK.
Further Reading on UK Company Law
Free Guide for Limited Company Directors
Business Rescue Advice for Directors
- How to manage company cash flow problems
- Advice on dealing with HMRC
- Understanding rescue and closure options
- And much more...
Business Rescue Guide for Accountants
Dealing with your Insolvent Clients
- Helping you advise insolvent clients
- Spotting signs of client distress
- Exploring business rescue options
- And much more...
