Published: 18th February 2016
It’s easy to see why you might want to retain your company name, even after liquidation. Maybe it was your first business and you want to try again, or you put a lot of effort into branding and don’t want to lose the impact of that.
Unfortunately, Section 216 of the Insolvency Act 1986, prohibits the use of limited company names post-liquidation. This is partly to protect the financial interests of creditors and members of the public, and applies to any company name used in the 12-month period leading up to liquidation.
The rule is applicable to any director or shadow director in office at the company in the same 12-month period. It is important to note that it also covers ‘similar’ names which might mislead the public into thinking it is the same, or an associated, company.
Directors or shadow directors must not use or be involved in the formation of any company with the prohibited name, or any similar name, for a period of five years from the date of liquidation.
Certain exceptions exist to this ruling:
Purchase the company and its name during the insolvency process
You have a short timescale in which to purchase the entire, or a substantial part of the company, including its debt, from the liquidator. This purchase includes the company name and the rights to use it. All company creditors must be informed, and a notice placed in the Gazette within 28 days of purchase.
Groups of companies
Some companies have very similar names if they are part of a group, and an exception exists to allow for this and prevent associated businesses being adversely affected by one of their group
There are severe penalties if you go against these rules, including fines and imprisonment. The courts take a dim view of anyone suspected of trying to mislead the public or creditors, and you may also become personally responsible for company debt from the time when you took over the name.
These penalties could also be applied to anyone acting on the instructions of someone who has contravened Section 216, if they are aware of what is happening. These rules are in place to prevent unscrupulous directors from evading their responsibilities to creditors by simply setting up a new company following liquidation of their old business.
If you’re in any doubt as to whether or not these rules apply to you, Real Business Rescue is here to help. We offer same-day consultations to discuss your situation, and the options available. With 78 offices across the UK, you’re never far away from expert and confidential advice.