Can I Re-use My Company Name After Liquidation? What Directors Need to Know

When a company enters insolvent liquidation, one of the first questions directors often ask is whether they can continue trading through a new business.

In many cases, the answer is yes. Insolvent liquidation does not automatically prevent a director from becoming involved in another company or starting a new business.

However, there is an important issue that is often overlooked. If the new business intends to use the same name, or a similar name, as the insolvent company, restrictions under sections 216 and 217 of the Insolvency Act 1986 may apply.

This is particularly relevant where a director plans to acquire the business, goodwill or assets of the insolvent company and continue trading. The ability to buy the business and the ability to use the old company name are separate issues, and they should both be considered before the new business begins trading.

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Key Takeaways

• Directors are not automatically prevented from starting another business after insolvent liquidation.
• Restrictions may apply if a director wants to use the same or a similar name as the insolvent company.
• The restrictions can apply even where the business or assets have been purchased from the liquidator.
• There are statutory exceptions that may permit use of a prohibited name if the relevant requirements are met.
• Court permission may also be available in some circumstances.
• A breach can result in criminal consequences and, in certain situations, personal liability for company debts.

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Can I Start Another Business After My Company Goes Into Liquidation?

A common misconception is that directors of companies that enter liquidation are prevented from starting another business.

That is not the case.

Provided there are no separate restrictions, disqualifications or other issues affecting the individual director, a person can generally become involved in a new company or business following the liquidation of a previous company.

The question is not whether the director can start again. The question is whether the new business can operate under the same identity as the insolvent company.

This distinction is important because directors will sometimes assume that purchasing the business from a liquidator automatically allows them to continue trading under the same name. In reality, additional rules may apply.

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What Is the Restriction on Re-using a Company Name?

Section 216 of the Insolvency Act 1986 places restrictions on certain individuals following an insolvent liquidation.

Where a company enters insolvent liquidation, anyone who acted as a director or shadow director during the 12 months before liquidation may be caught by the legislation.

For a period of five years, they cannot, unless an exception applies or the court grants permission:

• be a director of another company using a prohibited name;
• directly or indirectly be involved in the promotion, formation or management of such a company; or
• carry on an unincorporated business using a prohibited name.

The restrictions are wider than many directors realise. They are not limited to formally holding the position of director. Involvement in the management of a business using a prohibited name may also cause problems.

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What Counts as a Prohibited Name?

A prohibited name is not limited to the exact registered name of the insolvent company.

The legislation applies to:

• a name by which the insolvent company was known during the 12 months before liquidation; and
• a name that is so similar that it suggests an association with the insolvent company.

This means changing only part of a company name may not be enough to avoid the restriction.

For example, if “ABC Engineering Limited” enters liquidation, replacing it with “ABC Engineering Services Limited” may not resolve the issue if the new name still suggests a connection with the insolvent business.

Each case depends on its circumstances, which is why advice should be obtained before adopting a new trading identity.

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Why Does the Restriction Exist?

The purpose of the legislation is to protect creditors and reduce the risk of abusive phoenix activity.

Where one company has failed leaving creditors unpaid, there are restrictions around directors immediately continuing the same business under the same identity without following the appropriate legal process.

Importantly, the legislation is not intended to prevent legitimate business rescue or prevent directors from starting again. The focus is on the use of the company name and business identity rather than preventing future entrepreneurial activity.

You can read more about this in our article on Phoenix Activity Misconduct: Understanding the Risks.

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When Can the Old Company Name Be Used?

This is often the most important practical question.

The legislation does not create an absolute ban on using the old company name. There are circumstances in which a prohibited name can be used lawfully.

These include statutory exceptions and, in some cases, obtaining permission from the court.

One of the most commonly encountered exceptions arises where the whole, or substantially the whole, of the insolvent company’s business is acquired under arrangements made by the insolvency office-holder and the required statutory notice procedure is followed.

However, directors should not assume that simply purchasing the business automatically satisfies the exception.

The statutory requirements are detailed, and the timing of certain steps is critical. Missing a deadline or failing to complete the appropriate notices may mean the protection of the exception is lost.

Other exceptions may also apply, including circumstances involving an existing company that has already been known by the relevant name for a prescribed period before liquidation.

The key point is that eligibility for an exception should be established before the name is used, not after.

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Buying the Business From the Liquidator Does Not Remove the Issue

This is one of the most common areas of misunderstanding.

A director may legitimately purchase assets from a liquidator, including:

• goodwill;
• plant and machinery;
• intellectual property;
• customer databases;
• a website and domain names; and
• other business assets.

The liquidator may also sell the whole business as a going concern.

However, acquiring those assets and obtaining the right to use the former company name are separate matters.

A director who intends to continue trading under the same, or a very similar, name must still consider the restrictions under section 216 and ensure that any relevant exception has been properly satisfied.

The prohibited-name issue should therefore form part of the planning process from the outset.

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Case Study: ABC Engineering Limited

ABC Engineering Limited enters creditors’ voluntary liquidation after experiencing financial difficulties.

The director believes the underlying business remains viable and wishes to acquire certain assets and the business from the liquidator. The intention is to continue trading through a new company using the established ABC Engineering name.

Because the director served as a director during the 12 months before liquidation, the section 216 restrictions apply.

Purchasing the business does not automatically permit continued use of the ABC Engineering name.

Before the new company begins trading, consideration must be given to whether a statutory exception is available, whether the relevant procedural requirements can be met or whether court permission should be sought.

The important point is timing. These issues should be addressed while the transaction is being planned, not after the successor company has already started trading.

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What Happens If a Director Gets It Wrong?

The consequences can be serious.

A breach of section 216 is a criminal offence.

In addition, section 217 of the Insolvency Act 1986 can result in personal liability for certain debts of the successor company where someone is involved in its management in contravention of the prohibited-name rules.

In practice, what may initially appear to be a straightforward business continuation exercise can create significant personal risk if the requirements are not properly considered.

That is why directors should address the issue before the new business begins operating under the proposed name.

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What Should Directors Do If They Want to Continue the Business?

If you intend to acquire and continue the business of an insolvent company, it is sensible to:

1. Raise the proposed company name with the insolvency practitioner at an early stage.
2. Explain whether you intend to acquire and continue the existing business.
3. Avoid assuming that purchasing the assets or goodwill automatically permits use of the old name.
4. Obtain appropriate legal advice on section 216 and any available exception or court application.
5. Ensure all necessary steps are completed before the proposed name is used.

Taking advice early is normally far easier and less costly than trying to rectify a problem after the new company has commenced trading.

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The Key Message for Directors

Directors of companies that enter insolvent liquidation are not automatically prevented from starting another business.

However, if the intention is to continue trading under the same or a similar name, the position becomes more complex.

The restrictions contained in sections 216 and 217 of the Insolvency Act 1986 are designed to regulate the use of a company’s identity following insolvent liquidation. While there are statutory exceptions and mechanisms that may permit continued use of a name, they require careful planning and compliance with the relevant requirements.

If you are considering acquiring the business or assets of a company in liquidation and continuing to trade, it is important to address the company-name issue before the successor business begins operating, not afterwards.

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