It is a criminal offence to re-use a company name where that company has gone into insolvent liquidation, under section 216 of the Insolvency Act 1986. Colloquially, the offence is known as “Phoenix Trading” where the new company is the phoenix rising from the ashes of the old, insolvent, company. The purpose of section 216 is to, primarily, protect members of the public.
It is a criminal offence to re-use a company name where that company has gone into insolvent liquidation, under section 216 of the Insolvency Act 1986. Colloquially, the offence is known as “Phoenix Trading” where the new company is the phoenix rising from the ashes of the old, insolvent, company. The purpose of section 216 is to, primarily, protect members of the public.
A director will be personally liable of the offence under section 216 IA 1986 if:
- They were a director (or shadow director) of the Insolvent Company within the 12 months before its liquidation; and
- They become involved in of the carrying on of a business using a ‘prohibited name’ within 5 years of liquidation of the Insolvency Company
A ‘prohibited name’ is a name that the Insolvent Company was known by at any time in the preceding 12 month period, or is a name that is very similar to the Insolvent Company’s name so as to imply an association with the Insolvent Company.
Why would you need this service?
Despite the temptation of setting up a company using the same (or similar) name and to ‘continue as normal’, it is a criminal offence to do so without having followed the statutory notice procedures or obtaining the Court’s permission.
The consequences can be very serious and the director involved can become personally liable for the debts of the new company.
So, what are the potential consequences?
If a director is found to be liable, they are at risk of:
- A fine or potential imprisonment;
- Confiscation of any benefits obtained from the infringement;
- Disqualification from acting as a director; and/or
- Incurring personal liability for all debts arising during the infringement period.
How can you defend this?
Those accused of phoenix trading may not necessarily be liable if they can show they have obtained the court’s permission to do so prior to Liquidation or one of the three statutory exemptions apply:
- When the new company has acquired the whole of the Insolvent Company’s business, under an agreement with the Liquidator or Administrator;
- When retrospective permission is sought within the statutory time limits; and
- When the new company has been known by the ‘prohibited name’ for a period of at least 12 months prior to the Insolvent Company going into insolvency and has also been actively trading during that time.
Another possible defence open to the directors of the new company is that the name is not a ‘prohibited name’.
How much does it cost?
Our legal experts will provide you with an estimate of costs based on the type of work required at the outset. We can provide bespoke and cost-effective advice tailored to your circumstances.
The Bankruptcy Solicitors legal team have extensive experience in advising clients who have concerns about phoenix trading and can assist those who wish to continue to use their business’ trading name.
For more information, please contact our team of experts by emailing insolvency@bankruptcy-solicitors.com or call 020 8308 3610 today.