Starting A New Company After Liquidation - A guide for directors

Can I start a new company after liquidating another?

The general answer is that you can be a director of as many companies as you like at the same time. However, if you have been the director of a liquidated company, and you set up a new company it cannot have the same or a similar name to the old company   (a prohibited name)  This is to reduce any confusion for creditors of the old company.

This is called passing off (under section 216 Insolvency Act 1986). It can lead to criminal action against the director, or being held liable for all of the debts of the new company if it goes into liquidation. So the best advice is get the professional advice.

It is possible to buy the name through administration, or the liquidator can agree to sell the name and a court application can support this. However, any court application will need to show why the rules of section 216 should not apply to you. Not always easy. It should be borne in mind that if you were to buy the business you will need to pay a fair price. The business will have to have been valued by a chartered surveyor or asset valuer.

The other problem of setting up a new company with a similar name is that it can result in bad feelings. Creditors may think that the directors are being disingenous by using the same or similar name, even if it is all done by leave of the court.

There is nothing to stop you setting up a new company just because a previous one under your control has gone into liquidation.

However, if HMRC were a large creditor and this was not the first time that one of your companies has gone into liquidation, they may insist on a VAT or PAYE deposit to protect their position.

What is Section 216

This section applies to a person where a company (the liquidating company) has gone into insolvent liquidation on or after the appointed day. In addition he/she was a director or shadow director of the company at any time in the period of 12 months prior to liquidation.  The section concerns the use of prohibited names.

​Prohibited Names

A “prohibited name” is:

The name used by the liquidating company within 12 months before its liquidation, or A name so similar to the liquidating company’s name as to suggest an association.

Restrictions

• For five years following the liquidation, the person cannot (without court approval or other specific exceptions):
  Be a director of any company using a prohibited name.
  Participate, directly or indirectly, in the promotion, formation, or management of a company using a prohibited name.
  Be involved in any business (outside a company structure) using a prohibited name.

These restrictions apply specifically to cases of compulsory liquidation or other forms of insolvent liquidation.

Exceptions to Restrictions

There are three exceptions to the above restrictions:

1. Acquisition of Assets by the New Company:If the new company acquires the whole or a substantial part of the insolvent company’s assets through an arrangement overseen by an insolvency practitioner (e.g., liquidator, administrator, or administrative receiver), the name can be reused under these conditions:

   Notice Requirements:
   A notice (per rule 4.228) must be published in the London Gazette within 28 days of adopting the prohibited name.
   Creditors of the insolvent company must be informed that the individual is a director of a new company using the same or a similar name.

2. Court Approval:
   
   The new company may seek “leave” (permission) from the court to reuse the prohibited name, provided: The application for leave is made within seven days of the liquidation.The court grants leave within six weeks of the application.
3. Continuation of an Existing Name:
   
   Under rule 4.230, if the new company has been operating under the same name for at least 12 months before the liquidation (and was not dormant during that time), it may continue to use that name.

Penalties for Breach

Violating these restrictions is a criminal offense and may result in imprisonment, a fine, or both.

Definitions and Scope

• “Company Name” includes any name under which the company operated or carried on business.
• “Insolvent Liquidation” refers to liquidation where the company’s assets are insufficient to cover debts, liabilities, and winding-up costs.
• “Company” includes entities that may be wound up under relevant legislation.
  Court’s Role
• Courts with jurisdiction to wind up companies may grant permission for exceptions. The Secretary of State or official receiver can participate in proceedings and highlight relevant issues to the court.

Additionally, if you would like to liquidate your company, call us on 0800 9700539 We can talk you through the process, organise the legal paperwork and begin proceedings.