Is it legal to start up another company as a director whilst being a director of a company that is going into voluntary liquidation at the same time?
Can I start a new company post-liquidation?
The general answer is 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, to reduce any consuion for creditors of the old company.
This is called passing off and 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 should it too go 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 and this will 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 between creditors and the company as people believe that the directors are being disingenious by using the same or similar name even if it is all done by leave of the court.
In essence, 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 this was not the first time that one of your companies has gone into liquidation, and HMRC were a large creditor, they may insist on a VAT or PAYE deposit to protect their position.
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) be a director of any other company that is known by a prohibited name, or
(b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or
(c) in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name.
(4) If a person acts in contravention of this section, he is liable to imprisonment or a fine, or both.
(5) In subsection (3) the court means any court having jurisdiction to wind up companies; and on an application for leave under that subsection, the Secretary of State or the official receiver may appear and call the attention of the court to any matters which seem to him to be relevant.
(6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time.
(7) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.
(8) In this section company includes a company which may be wound up under Part V of this Act.
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.