Section 216 of the Insolvency Act 1986 states that unless an exception applies a person cannot be a director, promote or be concerned in the management of a company with the same or similar name to an insolvent liquidated Company of which he was a director or shadow director for a period of 5 years prior to the liquidation.
The definition of name is wide. It is not just a Companys registered name, it is also any trading name.
There are 3 exceptions to liability under S216:-
- If the new company has been trading for at least 12 months prior to the liquidation of the old company. It must have been actively trading throughout that period.
- You can apply to court for permission to use the similar name. However, any application must be issued within 7 business days of the insolvency of the old company. The court will ask for a report from the Insolvency Practitioner so it can be sure the director is not seeking to take the old companys goodwill and business for free.
- Where the business of the old company is bought from an insolvency practitioner ie a Liquidator, Administrator, Supervisor of a Voluntary Arrangement or Receiver. However this exception only applies if various other requirements are strictly followed (a letter to all creditors and notice in the London Gazette in prescribed form) and this must be done within the prescribed time limit.
It is a criminal offence to break the rules regarding the use of a prohibited name. Successful prosecution could lead to a fine, a prison sentence or both.
You could also be made personally liable for company debts incurred during the period you were involved in managing a business using a prohibited name – even if it was a limited company.
If you are involved in managing a business and act on instructions from someone you know to be acting as a director when restricted from doing so you would be committing a criminal offence.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.
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