The Insolvency Act 1986 places certain prohibitions on the re-use of a company name following the insolvency of a company.
This is to avoid “phoenix” companies rising from the ashes of insolvency to the chargrin and losses of creditors.
Consequently, section 216 of the Insolvency Act 1986 imposes restrictions on the re-use of a company or trading name.
Directors face the risk of claims being made against them by liquidators for personal liability in respect of the debts of NewCo, and/or the prospect of the matter being investigated by the Insolvency Service criminal enforcement team.
The prohibition applies to any person who was a director or shadow director in the 12 months prior to the insolvent liquidation.
That person cannot then become a director or be concerned in the formation or management of a new company (“NewCo”). The prohibition lasts for a period of 5 years.
The re-use of the company name, in the absence of either filing the appropriate notice or receiving the permission of the Court, may amount to a criminal offence and can therefore arise at any point at which the name is re-used.
The personal liability, of the directors, for the debts of NewCo will often arise upon the insolvency of NewCo.
Claims can also be brought by creditors to NewCo independently of NewCo or their liquidators.