Did you know that it is possible to continue to use the commercial name of your liquidated company?
TLT’s insolvency team in Belfast recently succeeded in obtaining permission from the court allowing the director of a liquidated company to continue using the liquidated company’s trading name with a new company. The Insolvency (Northern Ireland) Order 1989 provides that such an application must be made to use what would otherwise be a ‘prohibited name’.
The problem of forbidden names
A former director of a liquidated company is prohibited from acting as a director for any other company that bears a name sufficiently similar to the liquidated company to suggest an association with the liquidated company. Importantly for corporate directors, it is an offense to use a prohibited name without court permission. There is also the possibility of the director being fixed with monetary liability, as well as being sent back to the director’s disqualification unit.
The use of a prohibited name may result in a director being held personally liable for some of the debt of the liquidated company, as he would profit from what are arguably assets of the liquidated company.
Perhaps most importantly, admins should note that if found guilty of using a banned name inappropriately, the penalty can be up to 2 years in jail or a fine, or both. It is therefore important to be extremely careful in the face of these problems.
Directors should also be aware that any action by creditors or criminal penalties with respect to a prohibited name could also increase the chances of a referral to the Directors’ Disqualification Unit.
With the help and guidance of TLT’s Insolvency Team, Employment Team and Corporate Team, our Account Manager was able to transfer the business assets of his former company (which later went into liquidation) to his new company, and he was able to continue using the trade names associated with his old company without committing a Prohibited Name violation.
A request for permission to use a prohibited name is extremely urgent, both in terms of when the request is filed and when it is decided by the court. It is therefore essential that directors take appropriate advice before placing their company in liquidation so that the necessary preparatory steps can be taken in connection with the application for authorisation. There will inevitably be a lot of moving parts to coordinate.
TLT guided the director through the liquidation process and urgently issued the request following the liquidation of the former company. The Court was satisfied with the evidence provided and the order was granted.
Our Account Manager is now able to continue to do business with his new company with limited disruption to his customers and employees as, although the company name has changed, he can use the same brand names as he’s been using for decades.
An application of this type is not common in Northern Ireland, hence the absence of local case law on the subject.
However, it has long been predicted that insolvency levels will rise as we emerge from the pandemic and it may well follow that there could be increased demand for such apps. In many cases, directors will have had, through no fault of their own and entirely beyond their control, difficulties due to the pandemic. When such a director wishes to start afresh with a new company, he may wish to consider whether it would be appropriate and commercial to retain his trading name.