Can I liquidate my company and start again?
The short answer to “Can I liquidate my company and start again?” is yes, you can. Restarting your company after it’s been liquidated is entirely possible – when done in the right way using a licensed insolvency practitioner.
Once you’ve gone through the administration or liquidation process, it’s possible for the assets of your liquidated company to be bought by the former directors, so that you can provide the same type of products or services to the same markets. This is sometimes called creating a phoenix company.
Keeping the same name is often an important part of starting your company again. And this is where problems may arise – if you don’t have the right knowledge on your side.
What is a prohibited name?
The rules governing ‘phoenix-ing’ are set out in the Insolvency Act 1986, sections 16 and 17 (and subsequent amendments). A prohibited name is:
- the liquidated company’s registered name at any time in the 12 months before liquidation.
- any other name that the liquidated company, or part of the company, was known by at any time in that 12 months. This may include, but is not restricted to, any trading names, including registered trademarks or brand names, whether owned by the liquidated company or others.
- any similar name that suggests an association with the liquidated company.
On top of this, if you were the director of a company at any time in the 12 months before it became insolvent you are banned for five years from being a director or manager of a company with the same or similar name to the liquidated company.
Don’t let this put you off asking the question “Can I liquidate my company and start again?”
Because there are exceptions to these rules…
The exceptions to the rules
There are three exceptions (sometimes referred to as the ‘three accepted cases’) which you could take advantage of.
NOTE: If you don’t use these exceptions to create a company in the right way, you risk serious penalties so please only do so under the advice of a licensed insolvency practitioner.
Exception 1: The business or assets of the liquidated company – including the name – were sold to the new company by a licensed insolvency practitioner. The insolvency practitioner’s job is to act in the best interest of the creditors of the liquidated company, and money raised from the sale will be used to pay them. There are strict rules that must be adhered to in this exception so make sure you use a reputable firm.
Exception 2: Another company or business was already using the name for a period of 12 months prior to the failed company’s liquidation. The company requiring permission to use the prohibited name cannot have been dormant at any point during this 12-month period.
Exception 3: Permission to use the prohibited name is granted by the courts. An application for permission must be made within seven days of the liquidation, which will automatically grant temporary permission for a period of six weeks. The court will look at whether the new company has sufficient finance and has a competent financial team before making a decision.
De facto directors & shadow directors
A de facto director is someone who has not been officially appointed as a director (and registered as such with Companies House), but who acts as a director. Sometimes this person will have the word ‘director’ as part of a job title and will carry out the duties of a director. They are also subject to the same legal responsibilities and liabilities.
A shadow director is “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”, according to The Companies Act 2006, (s251).The Institute of Directors describes them as “A shadow director cannot carry out these acts themselves and probably acts behind the scenes as there is a reason that they cannot be appointed formally.” Claims of breach of duty cannot be brought against a shadow director but a claim of wrongful trading can. Shadow directors can also be disqualified.
What to do if you’re using a prohibited name
If you’re worried that your company is already using a prohibited name then you can contact us for free, confidential advice. There are steps that can be taken, such as:
- resigning as a director of the company known by the prohibited name.
- stop working within the business.
- changing the name of the company to one that is not the same or similar.
- getting the court’s permission to use the prohibited name – but any permission granted will not be retrospective.
- dissolving the company.
We can advise you on all of the above and help you decide on the best solution for your individual situation.
Penalties for non compliance
Directors who fail to comply with the Insolvency Act 1985 are acting unlawfully. The punishments include imprisonment or fines – and sometimes both. In extreme cases an order to confiscate ‘proceeds of crime’ can be made.
Other sanctions include being disqualified as a company director and being made personally responsible for debts incurred by the company while it was trading under a prohibited name (effectively, the loss of limited liability protection).
Six-month jail term for de facto director
In 2016, Robert Porter of Hampshire was sent to jail for six months for two insolvency offences: using a prohibited name and being involved in the management of a company despite being disqualified.
Porter was formerly the director of building company ADP Enterprises Ltd, which traded as A&B Construction. The company got into debt and was wound up in August 2008; Porter was given a director’s disqualification of three years and six months, ending in December 2013.
He was also prohibited from trading in the name of the dissolved company, or any name it had been known by in the 12 months prior to winding up, or any name so similar as to suggest a connection to the dissolved company.
In May 2008, Porter & Co was incorporated and operated as a building company. The company amassed debts and was wound up on 26 March 2012. In the course of Porter & Co’s winding up, the Insolvency Practitioner collected evidence, including invoices and statements from customers, which indicated that although his wife Kelly Porter was the sole registered director, in reality Robert Porter had been in control of the company and that the company had traded as A&B Construction.
The matter was referred for criminal investigation and the prosecution brought.
Kelly Porter received a sentence of 150 hours’ unpaid work and a one-year directors’ disqualification.
Use of prohibited name adds to offences
A restaurateur operating in London’s West End was jailed for 14 months after he continued to run companies despite a previous ban and using a prohibited name, following an investigation by the Insolvency Service and the Metropolitan Police
Sarkis Kouyoumdjian, from Kensington, has also received a nine-year directorship disqualification.
Having accepted disqualification over the failure of a restaurant business that he was a director of, Kouyoumdjian continued to run two branches of Middle-Eastern restaurant Massis, as well as Asian fusion restaurant, Cocochan.
He ran the restaurants through two companies, Live London Ltd and Plaha Catering & Events Ltd, but use of the restaurants’ names had been banned through earlier insolvencies and Kouyoumdjian’s connection with them.
He pleaded guilty to using a prohibited company name, along with other charges of running companies while disqualified, fraudulently removing property in anticipation of the winding up of a company, and further count of failing to deliver accounts and records to a liquidator.
While the answer to “Can I liquidate my company and start again?” is a positive one, when it comes to re-using a company name it’s best to proceed with extreme caution. With the right help, you could succeed in saving your business and your company name.