Where to begin

If your business has come into difficulty and you are at the point of insolvency, there might be several questions you need answering. Of course, how to formally close the business will be one, but if you wish to set up another company of a similar nature, you may be considering whether you can use the same business name. There are rules surrounding this and restrictions on what you can and cannot do. More detail is given below.

When can you NOT reuse your company name?

In certain circumstances, company names can become prohibited for use under Section 216 of the Insolvency Act 1986. The key reason for this is when it was associated with the insolvent company for a minimum of a year before it went into liquidation. Directors cannot reuse the name after liquidation for a minimum of five years. They also cannot use a name which is closely related, i.e., one that might indicate an association unless strict guidelines are followed.

What is a ‘closely related’ name?

This would be any name for the new business that someone independent could easily identify as being linked to the former, now liquidated, company. Any new business would need to be set up under a new identity that is significantly different from its former name.

What happens if you reuse your prohibited company name?

If you do choose to set up your new business in a direct contradiction to Section 216, i.e., reusing a prohibited name, there will be consequences. These include a fine or a prison sentence, and could even include both. Any directors who have operated in this way also lose the privilege of limited liability, meaning any financial risk would sit personally with them.

Reusing a company name

What are the exceptions of reusing a company name?

The exceptions are very specific, so at 1st Business Rescue, we would highly recommend speaking to an expert before going ahead. However, below are three key exceptions which would allow you to reuse your company name:

1. The name is already in use

This could be by another company or even a group of companies. One arm of the business might be declared insolvent and therefore needs to be liquidated, but the remaining business units will still be able to operate under their existing name. There is a condition for this to be allowed; the name must have been in consistent use (with no periods of dormancy) for a full 12 months prior to the liquidation of the insolvent business.

2. Court approval

The directors of the new company (newco) can apply directly to court to ask for permission to use the name of the former, insolvent company (oldco). This is also known as applying for leave. The application must be made within seven days of liquidation. The court will then investigate the new company’s position to see how robust it is financially and who will be leading it in the financial sense. Leave needs to be given within six weeks of the application date.

3. Pre-pack liquidation

Depending on the insolvency process chosen, a company or individual might be able to purchase the whole business which would include the trading name and would therefore be able to reuse it. A notice must be issued within 28 days of purchase to all the creditors of the insolvent business, and its acquisition must be published in the London Gazette. The new business can be referred to as a phoenix company.

Next steps

Reusing your company’s name post-liquidation is not necessarily straightforward, so in order to ensure processes are followed appropriately, it is wise to seek expert advice such as that of 1st Business Rescue. This will help mitigate the risk of any legal implications as you could end up violating Section 216 of the Insolvency Act 1986. We will be able to advise you on the best course of action for you and your business.

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