A company’s name and/ or trading style can be very valuable, especially if it’s a well-known company that’s been trading for years. If that company ends up going into liquidation, a director can’t really be blamed for wanting to carry on the good name of their company, and re-using it as the trading name of a new company.
However, the law has measures in place to restrict directors of a company from re-using a liquidated company’s name and/or trading style in order to prevent directors from misleading their creditors from hiding the fact that their company has gone into liquidation. The legislation states that directors who re-use company names in this way can face civil and criminal sanction and become personally liable for the debts of the new company. Consequences can be disastrous for the director as shown recently in a recent case, where a director was ordered to pay all the debts of his liquidated company which added up to nearly £1.13million. A hefty price to pay. In this case, the director re-used a liquidated company’s name without knowing he was breaking the law.
Darwin Gray’s insolvency specialists set out some key considerations for directors when dealing with the re-use of company names:
- How long does a director have to wait to re-use a company name? A director will have to wait at least 5 years before they can use the company name. When the company goes into liquidation, its name becomes ‘prohibited’, so a director won’t be allowed to use that prohibited name for at least 5 years from the date the company went into liquidation.
- What about other names, like trading names? It’s not just the registered name of the company that’s prohibited, directors won’t be able to use any name used by the company, including any name the company might have been known by, acronyms, or similar names that suggests association with the company.
- What happens if directors do re-use company names? Directors could receive a prison sentence, be ordered to do community service and/or ordered to pay the company’s debts.
- Is there any way a director can re-use a company name? Yes, it is possible to use a prohibited name if you do it the right way. If a director finds themselves wanting to re-use a prohibited name, they are able to do this with the Court’s permission. But it’s important to note that directors will have to get Court permission before re-using any prohibited name, and not after the fact. There is also an alternative route, whereby directors can serve a notice on the creditors of the company and advertise that in the London Gazette, but in order to be able to do so they have to purchase the whole or substantially the whole of the liquidated business from the liquidator.
- What if the director didn’t know they were breaking the law? As set out in the recent case noted above, liability is automatic when it comes to re-using a prohibited company name, so directors will be found guilty, whether they claim that they knew they were breaking the law or not.
If looking to re-use a company name after liquidation, making sure that you know the risks is vital. If you need any help or advice in navigating your way around company liquidation, please contact Darwin Gray’s insolvency team on 02920 829 100 or [email protected] / [email protected] for a free initial chat to see how we can help you.