If you are a Director of an insolvent company, Oliver Elliot can help you address your concerns over the re-use of company names.
The restrictions apply to anyone who has been a director of a company at any time in the 12 months before it goes into insolvent liquidation.
Background: Re-Use Of Company Names
The restrictions apply to anyone who has been a director of a company at any time in the 12 months before it goes into insolvent liquidation even though there may not have been any misconduct or dishonesty in relation to the failure.
The Restrictions: Re-Use Of Company Names
If you’re a director of a company, at any time in the 12 months before it goes into insolvent liquidation (is wound up), you are banned (restricted) for 5 years from being a director of, or directly or indirectly being concerned in or taking part in in the promotion, formation or management of a company with the same or similar name to the liquidated company. This same or similar name is known as a prohibited name.
You are also banned from directly, or indirectly, being concerned or taking part in the carrying on of a business using a prohibited name.
This ban applies unless one of the exceptions below is met or you have obtained the court‘s permission to use the prohibited name.
A prohibited name may include:
- the liquidated company’s registered name at any time in the 12 months before liquidation
- any other name that the liquidated company, or part of the company, was known by at any time in that 12 months. This may include, but is not restricted to any trading names including registered trade marks or brand names whether owned by the liquidated company or others
- any similar name that suggests an association with the liquidated company
This ban applies to anybody who has acted as a director of the liquidated company, whether formally appointed or not, in the 12 months before the date of the liquidation.
If you are found in breach of these restrictions you could be:
- prosecuted and, if convicted, imprisoned and/or fined, and sometimes an order to confiscate the proceeds of crime will be made
- disqualified from being a company director
- made personally responsible for debts incurred during the time you managed a company using the prohibited name
In addition, the same penalties apply to anyone who acts on the instructions of someone they know cannot use the prohibited name whilst they are:
- a director or manager of a company that uses the prohibited name
- involved in the management of another business that uses the name
This is because they are helping them to break the law.
Examples of common scenarios
It is often difficult to decide if a name is a prohibited name. The following examples are provided to help you understand what the courts may consider to be a prohibited name.
If you are in any doubt about whether a name may be so similar as to suggest an association then you should seek professional advice.
If the company in liquidation was called ABC Limited trading as XYZ it would be an offence for a former director to be a director or take part in the management of the following (unless an exception applies or the court has given permission to use the name):
- a company having the registered name ABC Limited or XYZ Limited
- a company having any other name if it trades, or partially trades, using the name ABC or XYZ
- a company with a name so similar as to suggest an association with ABC or XYZ
The same rules apply if you are concerned in carrying on an unincorporated business (for example as a sole trader) called ABC or XYZ.
If the company in liquidation was known by your personal name, for example John Smith Builders Limited, then John Smith will be a prohibited name unless an exception applies or the court has given you permission. However, any legal requirement to display your name as the proprietor of the business must also be complied with.
When can a prohibited name be used (the exceptions)
There are three exceptions to the ban. If you are unsure whether these apply to your situation you should get professional advice.
You can find details of these exceptions in the Insolvency (England and Wales) Rules 2016.
The business of the liquidated company is acquired (rule 22.4)
You may use the name if, under arrangements made with the liquidator
- the whole, or substantially the whole, of the insolvent company is sold by, or otherwise acquired from, the liquidator
- before using the name you give the required legal notice that you intend to be a director or be concerned in the promotion, formation or management of another company or business that uses the prohibited name.
You may also use the name if the whole, or substantially the whole, of the business of the company is sold, or otherwise acquired, under arrangements with the administrator, administrative receiver or supervisor of a CVA before the insolvent liquidation, and before using the name you give the required legal notice.
Before using the name the required legal notice must be published in the Gazette containing the details outlined in rules 22.4 (3)(b) and 22.5 no later than 28 days after completion of the arrangement. There is a template that you can use.
You must also send a copy of the legal notice to all creditors of the company known to you or whose names and addresses could be obtained by reasonable enquiries. This must be received by them no later than 28 days after completion of the arrangement.
Important points you should note
- you cannot give notice under this rule if you are already using the prohibited name (for example, this means that if the first insolvency event is liquidation and you are already re-using the name at the date of liquidation, you cannot use this rule)
- we consider that you cannot give notice under this rule if the company is not already in liquidation, administration, administrative receivership or in a CVA as the arrangement must be made with the liquidator, or other office holder, who is legally entitled to enter into the arrangement on behalf of the company at the time notice is given
- the arrangement to acquire the whole or substantially the whole of the business must be a detailed agreement and not a vague intention where the details of the arrangement, such as the price, have not already been agreed
- it is your responsibility and not that of the insolvency practitioner to make sure that the legal notice is given. You should not assume they will do it for you
- the arrangements for the sale/acquisition must have been made by the office holder
- it doesn’t matter who buys, or acquires the business; the important point is that you intend to act as a director or in the management of the business that will be using the name that you are prohibited from using
- this rule cannot apply if only the right to use the company name has been purchased; the whole or substantially the whole of the business must be acquired
- you must publish this notice and inform the insolvent company’s creditors before you use the prohibited name
- we consider the meaning of completion of the arrangements has taken place in a case involving a sale/purchase upon completion of the sale of the whole/substantially the whole of the business; that is the date from which it can be established that the sale/purchase was completed and ownership/responsibility for that business has transferred
- if the arrangements include to buy the business and pay by instalments then you must still give legal notice before you start to use the name and no later than 28 days from completion of the arrangements
Where you have applied to the Court for permission (rule 22.6)
If you apply to the court for permission to use a prohibited name within 7 business days of the date the company went into liquidation (this is a strict time limit) you may use the prohibited name for:
- up to 6 weeks from the date of the liquidation, or
- up to the point where the court decides whether to give you permission if this is less than 6 weeks
If the court hasn’t made its decision within 6 weeks, the ban will again apply to you. Important point to note:
- the 7 seven day period in rule 22.6 is a strict time limit. (You can apply for permission at any time during the 5 years, but you cannot use the name until permission is granted.)
The name is already in use (rule 22.7)
If you are involved with an established company which has used the same or similar name as the liquidated company for the whole of the 12 months before the date of liquidation, you do not require the court’s permission to keep using the name in connection with that company, provided the company has:
- used, or been known by, the name continuously for the 12 months before the liquidation
- traded for the whole of the 12 months before the liquidation
Important points to note:
- this exception only applies to companies that have traded for 12 months or more using a prohibited name and not to unincorporated businesses (including general partnerships)
- you cannot use this exception if the company with the similar name has been dormant at any time in the 12 month period, for example if it filed dormant accounts at Companies House for any of the relevant period
What should I do if I am using a prohibited name?
If you are worried that you might be using a prohibited name then we strongly recommend that you urgently seek professional advice about your position.
If none of the exceptions listed above apply then you could:
- resign and cease acting as a director of the company known by the prohibited name
- cease being concerned in the promotion, formation or management of the company known by the prohibited name
- cease being concerned in the carrying on of a business under a prohibited name
- change the name of the company or business to one that is not the same or similar
- cease using any trading style that may be a prohibited name
- obtain the court’s permission to use the prohibited name (but any permission granted will not be retrospective, ie it will not apply to any time before it was granted)
- subject to the company law requirements dissolve the company (see strike-off-dissolution-and-restoration) or cease to trade an unincorporated business
Changing a company or business name: Re-Use Of Company Names
If you choose to change a company or business name or trading style, you must remove the old name from all public facing information and replace it with the new name. This includes, but is not limited to:
- information displayed on the company’s website or on social media
- web or email addresses
- company stationery
- promotional materials
- information provided verbally by employees, for example when answering the telephone or sales activities
- business signs
Applying for permission to re-use a prohibited name
You can apply to the court for permission to re-use a prohibited name at any time in the 5 years following the date of the liquidation.
If you have already started to use the prohibited name then you will continue to be personally liable for any debts incurred using that name until the court grants permission (unless you applied within 7 days of the date of liquidation).
Permission cannot be retrospective; this means that you cannot make an application to try to avoid paying debts incurred before the date that permission is granted and you may still have committed a criminal offence for which you could be prosecuted.
You can make the application in any court which has jurisdiction to hear the application. If you are applying for permission in England, Wales and Scotland (from 6 April 2019 only), the rules require that you send a copy of your court application to the Secretary of State at least 14 days before the date of the hearing (rule 22.2).
The Insolvency Service acts for the Secretary of State in these applications. You should send a copy of the application by post or email to:
Compliance & Targeting Team – s216(3)
The Insolvency Service
3rd Floor, Cannon House
18 Priory Queensway
The Secretary of State’s representative may speak at the hearing or send information to help the court make its decision. There is no set list of information that may be brought to the court’s attention, but it could include:
- whether the business, or name, has been purchased or any agreed payment not made
- any relevant conviction of the director
- whether a director is already disqualified, subject to a bankruptcy order or bankruptcy restrictions order, unless there is also an application for permission to act in the management of the company
- whether a creditor has objected to the application or has complained about a successor company or business trading using the name
- any relevant comments that the liquidator, or official receiver, wishes to bring to the court’s attention
- recommendations that the final order should be specific in identifying the companies or businesses where permission is being granted. The application must be company or business specific so the court can make an informed decision about each entity and to avoid giving general permission to use a name
- anything else that is directly relevant to the application
The court will consider all the information provided to it. It may also ask the liquidator for a report into the circumstances leading to the insolvency and the extent (if any) of the applicant’s apparent responsibility for its doing so (rule 22.3). The result of the hearing may be that the court:
- gives permission for the applicant to use the prohibited name
- gives permission, but imposes one or more conditions
- rejects the application
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