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Enhancing Public Accountability: Key Elements of the Public Office (Accountability) Bill 2025
Kirsty Cook
“What's in a name? That which we call a rose by any other name would smell just as sweet.” Romeo & Juliet – William Shakespeare
Company names and brand names, which may or may not be the same, along with the goodwill attributable to that name, is often a valuable company asset. However, even well-established brands are not immune to economic pressures, and you only have to take a walk down your local high street to witness the disappearance of many household names.
When a company faces financial difficulties and ultimately fails, the insolvent company will often enter into a formal insolvency process, for example an administration or liquidation. The insolvency practitioner’s primary objective is to realise the company’s assets for the benefit of the company’s creditors. The insolvent company’s members or directors may decide to set up a new company to carry on a similar business and in doing so put forward an offer to purchase part or all of the business and assets of the company, including the company’s name and goodwill. The insolvent company’s debts remain behind and at the conclusion of the insolvency process the company is dissolved. In this scenario, the new company is commonly known as “phoenix company” because it rises from the ashes of the old company, like the mythical bird of fire from which it gets its name.
A phoenix company should not be confused with the term “phoenixing”. “Phoenixing” is a separate concept which attracts negative connotations, particularly with creditors, because unscrupulous directors may try to use this process to run up company debts, transfer the company’s assets to a new company controlled by them, possibly for less than their market value, and then liquidate or abandon the insolvent company with the intention of avoiding its obligations to creditors. Rogue directors may seek to repeat this process over and over again, emerging debt free each time. Because of this, there are strict rules that govern the use of this process, including the re-use of a name which is the same or similar to the insolvent company’s name or brand name.
Insolvency Act 1986
Section 216 of the Insolvency Act 1986 applies to a person where a company has gone into insolvent liquidation and that person was a director or shadow director of the insolvent company at any time in the 12 months prior to the liquidation, and it applies irrespective of whether or not there is any dishonesty or misconduct on the part of the directors of the insolvent company.
For a period of five years from the start of the liquidation, the former director is prohibited from being a director of, or being directly or indirectly involved in the promotion, formation or management of, any company or business with the same name or a substantially similar name as the insolvent company (known as a prohibited name). A prohibited name is any name by which the insolvent company was known in the 12 months prior to the liquidation or a name which is so similar to such a name as to suggest an association with that company. This includes any trading names or brand names used by the insolvent company during that period.
There are three statutory exemptions set out at Insolvency Rule 22 to the prohibition in section 216:
- the whole, or substantially the whole, of the business of the insolvent company is acquired from an administrator or a liquidator of the insolvent company, and before using the prohibited name, and subject to the below being effected within 28 days of the purchase:
- notice is given to the creditors of the insolvent company; and
- an appropriate advert is placed in The Gazette;
- the court grants permission for the use of the prohibited name; or
- the new company has continuously used the same or similar name as the liquidated company for the whole of the 12 months prior to the date of liquidation and both companies have traded for the whole of that period.
The consequences of breaching section 216 are severe and wide ranging. A breach of this section is a criminal offence; the penalty for which is imprisonment and/or a fine. A breach also results in personal liability of the director in question as well as any person who acts on their instructions if they know the director is in breach of section 216, for the debts of the successor company.
FURTHER INFORMATION
If you would like any further information or advice about the topic discussed in this blog, please contact our Corporate and Commercial team.
ABOUT THE AUTHOR
Luke Gregory works on a broad range of corporate and commercial matters including advising on company incorporation, bespoke articles of association and shareholder agreements, corporate governance, and Companies Act procedures such as off-market share buybacks and the removal of company directors.
In relation to insolvency and restructuring matters, Luke regularly acts for insolvency practitioners and purchasers on the sale and purchase of the assets of insolvent companies.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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