After a business enters liquidation, there are strict rules about the future use of its name or a similar name. These rules are intended to prevent directors from continuing the same business through a new entity in a way that could mislead creditors or the public. A prohibited name includes not only the registered name of the business, but also any trading name or acronym by which it was known during the twelve months before the liquidation.

These restrictions apply to anyone who acted as a director, or shadow director, in the twelve months leading up to the liquidation. The concept of being involved in a business is interpreted widely. It can include direct or indirect participation in the promotion, formation or management of a new business using the prohibited name.

The restriction remains in force for five years from the date of liquidation. A breach is a criminal offence and can lead to a fine or imprisonment. There may also be serious civil consequences, including personal liability for debts incurred during the period in which the individual was improperly involved.

There are, however, recognised exceptions. The most commonly used exception arises where the whole, or substantially the whole, of the business is purchased from the liquidator and the correct notices are given to creditors within 28 days, with notice also published in the London Gazette. Other exceptions can apply where an application is made to the court within seven days of the liquidation, although this often involves legal costs of around £4,000 plus VAT, in addition to Counsel's fees. A further exception may apply where another business has already been trading under the prohibited name for at least twelve months before the liquidation, which is sometimes relevant in group structures.

Outside these restrictions, former directors remain free to be involved in any business that does not use a prohibited name. Molly Monks F.I.P.A. at Parker Walsh can advise on whether the restriction applies and what steps, if any, may allow a business to continue trading lawfully under a new structure.

FAQs

How long do the restrictions on reusing a company name last after liquidation?

The restrictions remain in force for five years from the date of liquidation. During this period, former directors cannot be involved in a business that uses the prohibited name.

What counts as a prohibited name after a company goes into liquidation?

A prohibited name includes the company's registered name, any trading name, and any acronym by which it was known during the twelve months before the liquidation. It is interpreted broadly to cover names that are similar enough to cause confusion.

Can a director face personal liability for breaching the company name restrictions?

Yes. In addition to being a criminal offence, a breach can result in personal liability for debts incurred by the new business during the period of improper involvement. This can be a significant financial exposure for former directors.

What is the most common way to legally continue trading under the same name after liquidation?

The most frequently used exception is to purchase the whole, or substantially the whole, of the business from the liquidator. Creditors must be notified within 28 days and a notice published in the London Gazette for this exception to apply.

Does the restriction apply to shadow directors as well as formally appointed directors?

Yes. Anyone who acted as a director or shadow director in the twelve months before the liquidation is subject to the restrictions. Involvement in the promotion, formation or management of the new business is also caught, even if indirect.

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