Having shared the ins and outs of a director changing his name to avoid disqualification, a similar situation happened to me and that is the reuse of a company name following a liquidation, writing Gareth Wilcox, partner at Opus restructuring & Insolvency
If I put my company into liquidation, can I still be a director of another company?
The answer to this question is very good, yes. There is a relatively common misconception that if an administrator is appointed in relation to one company that is going into receivership, he cannot act for another. This is incorrect, and unless they are disqualified (by order, recognizance, bankruptcy, or debt relief order) from acting, they are perfectly entitled to act as administrator for a number. other companies.
Are there any restrictions on directors after liquidation?
Yes. Although there is no ban, there are some restrictions. Perhaps the most important of these is the prevention of the re-use of company names in accordance with Section 216 of the Insolvency Act 1986.
This provision applies to any director having exercised his functions during the 12 months preceding the liquidation, and includes “phantom directors”, that is to say any person acting as director, or any person on the instructions by which a director is accustomed to act, regardless of whether or not they appear on Companies House.
What does the director forbid himself to do?
Any person to whom the restriction applies is prevented, for a period of five years from the date of the liquidation, from being a director of a company whose name is so close to that of the company in liquidation that it suggests an association with this company.
They are also prohibited in any way from being concerned with or participating in the promotion, training or management of any business (- regular readers will recognize this as similar to the wording of the ordinances of disqualification), or any business other than a corporation, with a similar name. For example, a sole trader or a partnership.
What is the rationale for this?
The idea of the restriction is to prevent newly formed companies (which may have acquired assets from the liquidated company) from trying to profit from the perception of a historical trading period longer than it does. in a, which can be accompanied by a certain level of prestige and reassure those who are confronted with it. Obviously, when a similar name is used, it would be easy for a person dealing with the new business to confuse it with the old business when making decisions such as the appropriate line of credit or the like.
What are the consequences of a violation?
A director who violates this restriction is liable to imprisonment or a fine, or both. In addition, in accordance with Section 217 of the Insolvency Act 1986 anyone acting in violation of the restriction can be held personally liable for the debts of the company (or business) they operate under the same name.
As with the above, the wording of the provision is broad and reflects that of a disqualification, to bind any “shadow administrator” or anyone who acts on the instructions of someone who is acting in violation of the legal restriction.
This makes sense given that the restriction operates in the same way as a lapse, which is in effect a statement that an individual should not be protected by limited liability, since arguably there is a similar need to protect the public from a situation where it could be misled by an administrator acting in violation of the restriction.
Are there any exceptions?
Yes, there are three exceptions to the restriction:
Exception 1: When a prohibited name has been used by a company for a period of 12 months ending the day before the liquidation of the liquidating company, provided that this company has not been dormant at any time during this 12 month period.
This exemption is based on the fact that the company is entitled to rely on its own commercial history and serves to avoid difficulties within group structures where one entity goes bankrupt but the others remain solvent. Such a scenario would clearly be impossible without this exception.
Exception 2: When the court authorizes the use of the name.
In this scenario, there is a strict deadline in that a request must be made within seven business days of the liquidation date.
When a request is made, administrators have a grace period of up to six weeks from the date of liquidation or from the date the court decides to grant authorization (whichever is greater. short of both).
If a court decision has not been issued within six weeks, the ban applies in all cases. A request can be made at any time during the five-year restriction period, however, the name cannot be used until permission is granted.
Exception 3: When all or substantially all of the insolvent company is sold by a liquidator or otherwise acquired from a liquidator and before using the name, the required legal advice is given that the individual intends to be a director or be affected by the promotion, formation or management of another company or business that uses the name prohibited.
This is a complicated scenario that often arises when a successor company acquires the assets of an insolvent company. Before using the name, a required legal notice must be published in the London Gazette containing details of the insolvent company and other statutory information, no later than 28 days after the completion of the arrangement. The directors must also send a copy of the legal notice to all creditors of the liquidated company no later than 28 days after the completion of the arrangement.
It is important to note that the above process cannot be used if the forbidden name is already in use. In addition, it is the responsibility of the manager (s) personally to ensure that the process is followed. As much as they wish, this is not the responsibility of the appointed liquidator. If an administrator is considering relying on this provision, he would be well served by taking legal advice. Many attorneys will be happy to help you at a reasonable cost (but beware, some treat him as a “loss leader”).
Directors should not be concerned that an insolvent liquidation will prevent them from acting for another company, but should be careful with the restrictions described above. The definition of a “similar” name is a question of fact which will depend on the circumstances. If an administrator has any concerns about their own position or intention, after reading this article, they should seek legal advice urgently.