Permission to act as a director of a company with a prohibited name
| Author | Mark Watson-Gandy |
| Pages | 127-142 |
OBJECTIVE
Subject to three statutory exceptions under the Insolvency (England and Wales) Rules 2016, directors and shadow directors are prohibited under section 216 of the Insolvency Act 1986 from reusing any name their former company used in the year leading up to its going into liquidation without the permission of the court. The prohibition lasts for 5 years.
Failure to observe the law can carry serious civil and criminal consequences for the offending director.
A prohibited name for these purposes is any name by which the liquidated company was known at any time in the 12 months prior to the liquidation, or any name so similar as to suggest an association with that company.
The three statutory exceptions are:
(1) Where a company acquires the whole or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement. Creditors must be notified.
(2) Where an individual affected by section 216 of the Insolvency Act 1986 applies for leave of the court to use the prohibited name.
(3) The court’s leave is not required where the company, though known by the prohibited name within the meaning of the section has:
(a) been known by that name for the whole period of 12 months ending with the day before the liquidating company went into liquidation; and
(b) has not at any time in those 12 months been dormant.
7 days of the liquidation. If an application for leave is made there is no breach until 6 weeks and 1 day after the date of liquidation or the day on which the court disposes of the application (whichever is the earliest).
128 Corporate Insolvency Practice
APPLICATION
The application is made by application notice (Form IAA). Three copies of the application need to be filed with the court.
Notice of any such proposed application and a copy of the evidence relied on must be given to:
ƒ the court;
ƒ the Official Receiver; ƒ the Secretary of State.
At least 14 days’ notice must be given of the application to the Secretary of State.
The Official Receiver, the Secretary of State and the liquidator do not need to be named as respondents to the application.
COURT FEES
Where the application is made for determination by the court, a court fee of £155 is payable.
EVIDENCE
The application should be supported by a witness statement by the company’s director. This will need to address:
ƒ who makes the application;
ƒ the deponent’s capacity to speak for them;
ƒ the old company’s name and business;
ƒ the old company’s nominal and paid up share capital;
ƒ details of the circumstances leading to the winding up order being made against the old company;
ƒ how the old company became aware of the winding up order;
ƒ the responsibility of the applicant for the failure of the old company;
ƒ how the goodwill and name was acquired by the old company by the new company (and what price was paid);
ƒ the new company’s name and business;
ƒ why the new company operating under a name similar to the old company does not present a risk to the public;
ƒ what the role of the applicant in the new company is proposed to be;
ƒ the attitude of the old company’s liquidator/Official Receiver to the application.
The witness statement should exhibit:
ƒ the director’s/liquidator’s report on the old company;
ƒ evidence of the sale of the goodwill or name;
ƒ a letter from the liquidator/the Official Receiver stating that he supports/ does not oppose the application;
ƒ written evidence of the new company’s assets;
ƒ written evidence of the new company’s liabilities.
SERVICE
The address for service on the Secretary of State is:
Prosecution Section
Room 110
PO Box 203
21 Bloomsbury Street
London WC1B 3QW
Where the company is in creditors’ voluntary liquidation as opposed to compulsory liquidation, notice does not need to be sent to the Official Receiver and Secretary of State, but should be sent instead to the old company’s liquidator.
Service may be effected personally
THE FIRST HEARING
The first hearing is before the registrar or district judge. Advocates are not expected to robe. Normally, the court will adjourn the case on the first hearing to give directions for the Official Receiver or liquidator to make a report on the reasons for the failure of the old company and the directors’ conduct in respect of this.
130 Corporate Insolvency Practice
KEY STATUTORY PROVISIONS
Sections 216 and 217 of the Insolvency Act 1986
216 Restriction on re-use of company names
(1) This section 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.
(2) For the purposes of this section, a name is a prohibited name in relation to such a person if—
(a) it is a name by which the liquidating company was known at any time in that period of 12 months, or
(b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company.
(3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation—
(a)...
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