Q&As

Does section 216 of the Insolvency Act 1986 apply in a pre-pack scenario to a person who is a new de jure director of the Newco using the prohibited name, but who was appointed in Oldco (only for six months) prior to the administration as an employee though using the title ‘managing director’? They did not have any practical control over the business during that time.

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Produced in partnership with Emma Horner of 4 Stone Buildings
Published on LexisPSL on 01/04/2020

The following Restructuring & Insolvency Q&A Produced in partnership with Emma Horner of 4 Stone Buildings provides comprehensive and up to date legal information covering:

  • Does section 216 of the Insolvency Act 1986 apply in a pre-pack scenario to a person who is a new de jure director of the Newco using the prohibited name, but who was appointed in Oldco (only for six months) prior to the administration as an employee though using the title ‘managing director’? They did not have any practical control over the business during that time.
  • Section 216 of the Insolvency Act 1986
  • Exceptions

Section 216 of the Insolvency Act 1986

Section 216 of the Insolvency Act 1986 (IA 1986) only applies in respect of companies which go into ‘insolvent liquidation’, as defined in IA 1986, s 216(7). A pre-pack administration often uses liquidation as an exit strategy, but it could also use, for example, a CVA. If liquidation of OldCo is used as a means of exit from the pre-pack, then there is a risk that IA 1986, s 216 would apply and the prudent approach would be to take advantage of one of the exceptions set out in the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024.

For further information, see Practice Note: Prohibited names under section 216 of the Insolvency Act 1986.

The definition of ‘director’ in section 250 of the Companies Act 2006 (CA 2006), IA 1986, s 216 applies not only to de jure directors, but also de facto directors. It also expressly applies to shadow directors, as defined by CA 2006, s 251. Whether this person was a ‘director’ requires consideration of the circumstances of their role as ‘managing director’, it is a question of fact (see: Re UKLI Ltd). Consideration will need to be given to whether the ‘managing director’ was part of the cor

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