If there is one thing about corporate insolvency that every professional advisor needs to know, it is a rough understanding of section 216 of the Insolvency Act 1986. This section deals with the re-use of a company (or trading) name following a formal liquidation or other insolvency process.
Most professionals have come across the situation where a company goes into liquidation and shortly after the same director is trading again, through another limited company with a similar name – it’s not an uncommon situation.
Under section 216 it is an offence for a person who has been a director, or shadow director of a company that has entered liquidation to be a director of any company which uses the same (or similar name) for a period of five years. Not only is this an offence punishable by up to two years in prison, but the director is personally liable for the debts of the successor company. Yes, that’s what section 216 says – it’s so important not to get this wrong.
There are only three exceptions;
– Where a company acquires the whole or substantially the whole, of the business of an insolvent company, under arrangements made by the insolvency practitioner. Creditors must be notified and notice of this arrangement must be advertised in the London Gazette.
– Where an individual applies for leave of the court to use the name in question.
– The court’s leave is not required where the company has been known by that name for the whole period of 12 months ending with the day before the liquidating company went into liquidation, and has not at any time in those 12 months been dormant.
Corporate Insolvency advice from Griffin & King
At Griffin & King we go to great pains to make sure directors (and their professional advisers) understand these provisions and assist to make sure any appropriate notices are given. Unfortunately, I know other IP’s are not so careful and I’ve come across some grave situations that could have been avoided with more thought and guidance.
If you have any clients or contacts needing corporate insolvency help or that have financial warning signs with their business please ask them to get in touch with me, 01922 722205 (Tim Corfield) or Mark Shaw or anyone of the team for a free, confidential chat – we will be able to help and point out potential pitfalls! In many cases a formal insolvency can be avoided – the sooner we get involved, the sooner we can help put a survival plan together. Take a look at our testimonials and see how we have helped others.