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Phoenix Companies - directors’ re-use of company names permitted

Date: 28th June, 2007   |   Author: Chris Laughton   |   Comments: 3

Section 216 of the Insolvency Act 1986 restricts the use by a Phoenix company or successor business of a similar name or trading style to that of a company in insolvent liquidation as reported in an earlier post.

Any director of the insolvent company who is involved in managing the successor, unless he has leave of the court and subject to the exceptions in rules 4.228 to 4.230 Insolvency Rules 1986, is both liable to criminal prosecution and personally liable (under s217) for the debts of the successor.

The first exception - when notice is given to creditors (rule 4.228) was found wanting by the Court of Appeal in Churchill & Churchill v First Independent Factors and Finance Ltd ([2006] EWCA Civ 1623).

The draft Insolvency (Amendment) Rules 2007 have therefore been produced to substitute a new version of rule 4.228 with effect from 23 July 2007.

The new rule will enable a director - as had been intended but not achieved by the original rule - to give notice to creditors and so avoid contravening s216 if the insolvent company's business is acquired from an insolvency practitioner.

Most insolvency MBOs will therefore be able to avoid an application to court, provided the notice is given either:

  • before the director becomes involved with management of the successor; or
  • before the successor uses a prohibited name.

Circumstances in which an application may still be required include:

  • where the director is involved with management of a business or a company using a prohibited name and there is no acquisition of the whole (or substantially the whole) of the insolvent company's business; and
  • where the director is already a director of a company with a prohibited name, but that company has not been known by that name for 12 months prior to the date of liquidation or has been dormant during that period.

The complexities of these requirements mean that to be sure of avoiding the criminal and civil consequences of contravening s216, directors of insolvent companies who anticipate involvement with a similarly named business take specific professional advice about this issue.
 


 

Discussion and Comments

By Chris Laughton on Friday 29th June, 2007

By Ian on Tuesday 3rd July, 2007

Chris,

My company was liquidated. We started a phoneix. I have been blogging about my experiences since (only a couple of weeks)

While this blog is really useful, it would really help if there was a way where the “afflicted” could get an easily digestible form of advice.

One problem I suspect many people in my siuation have is fear of the insolvency practitioner.

The biggest fears we have are not per se the legalistic nature of what’s going to happen, but pure and simple survival.

While there are many serial offenders who routinely liquidate their companies only to magically purchase the assets (in cash), there are arguable more honest, hard-working individuals, who because of the UK stigma, are thrown on the heap when a genuine phoenix can be raised.

Particularly when they now have the experience of which mistakes NOT to repeat.

I am still searching for a user friendly insolvency practitioner blog to refer the many visitors I get to my site.

I do realise that you have to take a very official line, but is there a way insolvency practitioners can be made more accessible?

Where the worried can visit to get some perspective before making the phone call?

Do we need more middlemen other than accountants to plug this gap? better turnaround consultants?

Interested to hear your views.

By Chris Laughton on Wednesday 11th July, 2007

Ian

You’re right, advisers should be more accessible.

Fear of insolvency practitioners is understandable, but some of us are nice people - honestly! Actually, better IPs concentrate on business rescue as much as on using formal insolvency procedures. It makes commercial sense because rescue is a service people want. It addresses their fears about survival.

More middlemen is not the answer - many businesses already have a friend, lawyer, accountant or other adviser who could find them an IP if necessary. I’d rather see the business recovery profession get its own message across better.

Really the key is to be aware of problems looming (before they bite you) and get help early.

Here at Insolvency Blog we try to do our bit with our internet presence. We’ll keep posting what we think might be helpful and what people tell us they want to know. We’re also trying to be more user-friendly - all suggestions welcome!

 

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