How a director of an insolvent company can use a prohibited name and avoid personal liability
How a director of an insolvent company can use a prohibited name and avoid personal liability

The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:

  • How a director of an insolvent company can use a prohibited name and avoid personal liability
  • What is the prohibited name rule?
  • Exceptions—how a director may re-use an insolvent company's name

The purpose of this Practice Note is to:

  1. describe section 216 of the Insolvency Act 1986 (IA 1986)

  2. discuss the exceptions to that section

  3. discuss how those exceptions can be used in practice

What is the prohibited name rule?

The general rule is that a director of a company that goes into liquidation cannot use the name of that company in liquidation in a new business for a period of five years, or they risk criminal and/or civil penalties. However, there are of course exceptions, which are set out below.

A prohibited name (defined under IA 1986, s 216) is a name which cannot be used by a person:

  1. who was a director of a company that has gone into insolvent liquidation, for a period of five years after the liquidation

  2. if they were a director or shadow director of that company at any time in the 12 months ending with the day before it went into liquidation

  3. and the name of their new venture is either the same name, or a name so similar to the name of the insolvent company so as to suggest an association with that company

For the purposes of IA 1986, s 216, a general partnership wound up by the court is not a company, and therefore the prohibited name regime in that case does not