Phoenix Companies - re-using the name of an insolvent company
Question: I am the director of an insolvent company and want to use a similar name in my new business. Can it be done and what are the pitfalls?
Answer: Yes it can be done. The main pitfalls are the penalties if you get the details wrong - imprisonment or a fine, or both, and personal liability for the debts of your new company!
Q: So how can I use the name I want without risk?
A: Either:
- you buy the business from the insolvency practitioner appointed to the insolvent company and send certain information to its creditors;
- you apply to court for permission to use the new name; or
- the new company has been known by the new name for 12 months before the old company went into formal insolvency.
Q: So as long as I give notice or get permission there will be no problem?
A: As you might expect, the law is not entirely straightforward:
- the points above apply from 6 August 2007 (until then problems with the wording of the law and a Court of Appeal decision made it much more difficult - our technical posts explain this here);
- there are strict time limits for giving notice and making court applications; and
- making a court application costs money and the court may say no!
Q: So what should I do?
A: This is a tricky and specialised area where you should take advice from an independent insolvency practitioner or a specialist insolvency lawyer.
These rules are surely asking for trouble? Evesham Technology is an excellent example of what I, personally, feel is inappropriate - but probably legal - behaviour.
All but on of Evesham's directors resigned leaving the founder of the company as sole director and company secretary - this, of course, is illegal. Having failed to find new investors and board members, the remaining director put the company into administration. However, whilst doing this the director was also setting up another limited company and negotiating with the administrator to licence the company name and take on the order books. The director in question is running the new company. It is using the old company name, fulfilling the old company's orders for the old company's customers using the old company's stock!
Morally that is wrong. Legally? Dubious but probably not against the law.
If the director of Evesham Technologies broke the law in relation to the company, the administrator has a duty to report it to the relevant authorities. This may lead to the director's disqualification as a director so that he can no longer run a company.
Creditors or others with knowledge or evidence of directors' wrong-doing should notify the administrator.
If the director is also a director of a new company that bought the old business from the administrator, the director will be breaking the law unless he complies with one of the 3 numbered steps in my original post. Incidentally, buying the business in those circumstances will require the new company to pay a better price than anyone else for the name, the orders, the stock and any other assets.
Often the directors of a company are the only party interested in acquiring the assets of a failed business from its administrator, at least for more than a nominal sum. If that is the case the administrator's duty is to make that sale to increase the return to creditors. Creditors will be notified of the sale - particularly if there is re-use of the company's name or trading name - and can then decide whether to do business with the new company.
And remember, if a director does illegally re-use a company name, he is personally liable for the new company's debts.
We are a company in CVA who are still struggling to cope. A consulting company has visited us to say they can organise for us to start up a new company with similar name buy all the assets of the old company for market value and let the old go into liquidation. Of course they want a fee of a few thousand pounds for this and they were very convincing. Are we jumping out of the frying pan and into the fire
William, getting the business out of a failing CVA is much more complicated and risky than just arranging to re-use the name of a company in liquidation.
Technicalities over names are relatively easy for a professional adviser to deal with, but the commercial challenges you seem to be facing need skill and experience to overcome.
What the consultants have said could well be right, but what does your CVA supervisor say?
You say "struggling to cope". Is your business profitable and cash generative? Is the problem that you're having to pay too much to the supervisor in contributions to go to the CVA creditors (you may be able to change that)? Or are the problems deeper than that (in which case buying the assets back and leaving the liabilities behind may not be enough to put things right).
If the consultants asked these sorts of questions and more, explored all the options and convinced you that their proposal is the best deal for the CVA creditors as well as for you and the ongoing business, it may be worth a few thousand pounds.
Otherwise, you might get burnt.
What if you are a partnership (been trading for many years) and then you incorporate it into a limited company (same name as partnership). Is there a problem with the name ?
Shaun
I assume in your situation there is a company (A) in liquidation with a similar name. You will only avoid the problem completely if the partnership transferred to the new limited company (B) at least 12 months before A went into liquidation.
Just continuing with the partnership would also require leave of the court.
Chris