If you are a director of a company which cannot pay its debts, you have a legal duty to do something about it. One option is to close your company with a Creditors’ Voluntary Liquidation (CVL). 

There are many advantages to a CVL, but there are also some factors that you should consider before going down this route. One factor is whether you can reuse the name of your old company after it has been liquidated. It is a complicated matter. 

In this article, Clarke Bell will discuss the rules and regulations surrounding company name reuse, what you can and can’t do, and the potential consequences of reusing a company name illegally.

Why retain an old company name?

There are some advantages to having a new company inherit the name of an old company, or one with a close resemblance. The main advantage is clear; inheriting the name of an old company grants a new company the same reputation as the old one. Assuming the reputation was positive, this gives the new company a leg up when starting out, with the inherited good reputation helping to drive internet traffic and attract customers.

If a company has gone into liquidation because it was unable to pay its debts, it is often the case that its reputation is not positive. In such cases, directors would normally not want to retain the company name for any new business ventures as the company would be tarnished by the name.

It is important to stress that liquidating a company in extreme debt, only to essentially continue operations under a new entity (known as phoenixing) is not allowed. Laws exist to stop phoenixing from happening. 

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When is it prohibited to reuse a company name?

The main regulation that is pertinent to reusing a company name is Section 216 of the Insolvency Act. This section exists to close loopholes that some directors might want to use to evade paying debt, and has three main points governing the reuse of a company name. Below is a detailed overview of these three points.

Insolvency Act, 1986 – Section 216

• If an insolvent company is liquidated, the name it has at the start of the liquidation, and any names it has had 12 months prior to the start date, are prohibited. These names cannot be used under any circumstance.
• Names similar to the prohibited company names also cannot be used. In practice, similar means any name that can draw a link to any old names the company had, or any names it may have been registered under or traded under. To be safe, it’s best to create an entirely new name.
• These rules apply for five years after the liquidation has been executed. Anyone involved in the opening of the new company, including company directors, owners, and officers, must abide by these rules.

Consequences for using a prohibited company name

If you break the rules detailed above, you will likely face one or more of the following consequences:

• Fines
• You could be made responsible for repaying your company’s debt. This can happen even if you haven’t signed a personal guarantee as part of a loan agreement.
• Prison sentence – in extreme cases, you could receive a prison sentence for reusing a prohibited company name.

Exceptions to Section 216

Although Section 216 of the Insolvency Act limits the vast majority of company name reuses, there are some exceptions that can allow directors to open a new company under the same or a similar name. These exceptions are:

• Application to the courts – To reuse a company name that would otherwise be prohibited, you could take your case to the courts and argue for an exception. This application must be submitted within seven days of the liquidation. Additionally, you must be able to prove that your new company is financially sound, reasonably safe from falling into insolvency like its predecessor, and has a team of adept people at the helm.
• The prohibited name is already in use by another of your companies – If the name of your old company, or one closely resembling it, is already in use by one of your other companies, you might be able to reuse it. To do so, the company going by a similar name must have traded regularly under that name for more than 12 months before the liquidation of the old company.
• Your company is sold by an insolvency practitioner – If your company is sold by a licensed insolvency practitioner, as part of a pre-pack administration for example, then you might be able to reuse the company’s name. To do so, you must place a notice in your local Gazette, and inform your company’s outstanding creditors of the sale within 28 days of the sale agreement.

Clarke Bell can help you

If you are considering placing your company into liquidation, we can help you. We can guide you through the whole process, including if you are considering reusing your company’s name.

Clarke Bell have more than 29 years of experience in helping directors find the best solution to their company’s financial problems. 

Our team is professional and friendly; and our fees are affordable.

To see how we can help you, just give us a call.