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James Rea-Palmer of Squire Patton Boggs LLP, considers the decision in Re Newtons Coaches Limited, a case concerning the applicability of section 216 of the Insolvency Act 1986 (IA 1986) to partnerships.
Re Newtons Coaches  EWHC 3068 (Ch),  All ER (D) 109 (Dec)
The recent case of Re Newtons Coaches considered whether a partnership falls within the remit of IA 1986, s 216. The case looked at what IA 1986, s 216 is designed to prevent and the nature of partnerships in the context of both the Insolvent Partnerships Order 1994 (IPO 1994) and the IA 1986. The Registrar held that IA 1986, s 216 does not apply to partners of a partnership that has been wound up.
IA 1986, s 216 imposes restrictions on the use of certain company names by persons who have been previously involved with a company that has entered insolvent liquidation (failed company). The section was enacted to restrict and prevent the ‘phoenix phenomenon’, by which former controllers of a failed company set up a newco with the same or a similar name to the failed company in order to obtain its goodwill while jettisoning its creditors.
Under IA 1986, s 216, a person who has been a director or shadow director of a failed company is prohibited from acting as a director of or be concerned or take part in directly or indirectly the management of another company or business (successor company) with the same or a similar name (a prohibited name) for a period of five years following the liquidation without permission of the court.
There are both criminal and civil penalties for a breach of IA 1986, s 216: criminal sanctions are up to two years’ imprisonment and/or an unlimited fine on indictment or six months’ imprisonment and/or the statutory maximum fine of £5,000 on a summary basis; in a civil case the individual can be made personally liable for the debts of the successor company.
There are three exceptions to the general prohibition under IA 1986, s 216 (see rules 4.228–4.230 of the Insolvency Rules 1986, SI 1986/1925 (IR 1986)):
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