Insolvency Rules 2016 - Re-use of company names

Section 216 Insolvency Act 1986 prohibits a director of a company that goes in to insolvent Liquidation from running a business that uses the same or a similar name to the old company. That includes trading names, brand names and trade marks. The prohibition applies to anyone who was a director of the old company (whether formally appointed or not) in the 12 months before it went in to Liquidation and lasts for the next 5 years. The prohibition applies to any business and not just to limited companies. Breach of the so called “prohibited names” provisions can result in personal liability for the debts of the new business, criminal prosecution and disqualification from acting as a director. 

The relevant rules now dealing with the exceptions are contained in new rules 22.1 - 22.7.

The three exceptions remain broadly the same but there are some key differences to note.

Exceptions to the prohibition

1. The whole, or substantially the whole of the business of the insolvent company is acquired from an office holder (whether acting as liquidator, administrator, administrative receiver or supervisor of a CVA), AND notice is given in the form required by r22.4(3)(b) (no longer a prescribed form) and including the statement contained in r22.5, to every creditor of the insolvent company and published in the Gazette, such notice to be given within 28 (clear) days after completion.
   There is a new addition to this exception which states that notice may not be given by a person who has already acted in breach of s216. Notice must therefore be given prior to the relevant individual being appointed as director or otherwise acting in the promotion/formation/management of newco, or newco must only adopt the otherwise prohibited name after the notice has been given. Practically, notice may now need to be given contemporaneously with completion to avoid the risk of breaching s216 or losing the ability to use this exception. 
2. The permission of the Court is sought and obtained - r22.6. The application must be made not later than 7 business days from the date on which the company went into liquidation. If the application is made within that time period, there is an interim permission between the date of liquidation and the earlier of 6 weeks later or the date the Court disposes of the hearing. At least 14 days' notice must be given to the Secretary of State (r22.2) and the liquidator may be required to provide a report (r22.3).
3. No permission is required if the company known by the otherwise prohibited name has (i) been known by that name for the whole of the 12 months ending with the day before the company in liquidation went into liquidation and (ii) has not been dormant during that period - r22.7. 

The Insolvency Service has produced a form compliant with r22.4 (replacing old form 4.73, the form on which notice was given). 

In terms of gazetting, r22.4(2) suggests that the entirety of the contents as prescribed in r22.4(3)(b) (and the statement in r22.5) should be gazetted. There already appears to be some difference in approaches in terms of gazette adverts after 6 April. Given the contents of the new rules and the very severe penalty for breaches of s216, and we suggest the full notice contents are published.

For more information about this article, please contact a member of our Restructuring & Insolvency team.