Can a sole trader use the same name as the company he placed into Liquidation?
We have been asked this question a number of times when advising directors about placing the company into liquidation with the director starting again as a sole trader. The question is usually accompanied with the line “my accountant says I can”.
The restriction on re-use of company names is codified in Section 216 of the Insolvency Act 1986 which sets out that it applies to a person where a company (“the liquidating company”) has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation.
A prohibited name is in relation to such a person if –
- It is a name by which the liquidating company was known at any time in that 12 month period, or
- It is a name which is so similar to that name as to suggest as association with that company.
The restrictions apply to anyone who has been a director even though there may not have been any misconduct or dishonesty in relation to the failure of the company.
Except with leave of the court (or as prescribed) a person to whom this section applies shall not at any time in the period of 5 years beginning on the day the liquidating company went into liquidation –
- Be a director of any other company that is known by a prohibited name, or
- Either directly or indirectly be concerned or take part in the promotion formation of management of such a company, or
- Either directly or indirectly, be concerned or take part in the carrying on of a business carried on under a prohibited name.
This also includes trading names, registered trade marks or brand names.
The penalty for contravention of Section 216 is imprisonment or a fine or both. They may also be disqualified as a director. A person can also be made personally liable for all the relevant debts under Section 217 of the Insolvency Act for the successor company if s/he contravenes Section 216.
But back to the question and the reason that one section is in bold and italics. It is the carrying on of a business that is pertinent to the question which means yes, sole traders and partnerships are also subject to the restrictions on the use of a prohibited name.
We have précised the sections of the act for the purposes of this blog and there are exceptions and of course the court can agree the use of the prohibited name, in certain circumstances.
The legalisation was brought in to protect creditors from directors “phoenixing” the business from one company to another and leaving the debts behind in multiple insolvencies. Most creditors are unaware that they can take action if they find themselves also being a creditor of the successor company.
If you require any assistance please do not hesitate to call us on 0800 118 2948
You don’t know what we can do until you ask.
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