Is it legal to start up another company as a director whilst being a director of a company that is going into voluntary liquidation?
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. 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.
(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.
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.