Section 216: Re-using prohibited company name
Section 216 of the Insolvency Act 1986 makes it illegal for any person previously a director/shadow director of a company at any point in the 12 months preceding the company’s insolvent liquidation, to be involved in another company with the same or a similar name for five years after its liquidation.
The law was created to counter cases of phoenixism. A similar name becomes a prohibited name by law and includes an official name, trading name, registered name, or any name suggesting association with the liquidated company.
The law states that any individual previously a director of a company in the 12 months preceding its insolvent liquidation is banned for 5 years from directly or indirectly being concerned with or taking part in a business using the prohibited name. You are prohibited from forming, managing, directing, promoting, or taking part in an unincorporated business with the same or similar name to that of the liquidated company.
Ignorance of this law is no defense, contravention of sections 217 and 216 attract a prison term and prosecution. Section 217 states that those in default of s216 are liable for debts and liabilities of the new company bearing the prohibited name for the period of their involvement with it. Those found guilty risk disqualification from directorship and confiscation of proceeds from the crime.
Exceptions to section 216
Rule 22.7; if the other company which you are not a director of has already been using the name, traded by it, or was known by it has been active for the whole 12 months before the company's liquidation.
Rule 22.6; a court of law, after an application is made within 7 days of liquidation, grants temporary permission to use the prohibited name for six weeks. You can apply for permission during the 5 years but cannot use the name until permission is granted.
Rule 22.4 and rule 22.5; a new company acquires the assets and business of the insolvent company through a licensed insolvency practitioner or liquidator and a notice is sent to creditors and gazetted within 28 days of acquisition.