Liquidating a company involves selling all its assets to repay all existing creditors before “winding down” the company for good.
If you’ve had to face the difficult decision to put your company into liquidation, we understand how tricky it can be and what a task it is to put the liquidation motions in place. However, just because you’ve had to put your company into liquidation, it doesn’t mean that you can’t start up a new company and if you’re planning on reusing your company’s name, it’s not necessarily impossible to do, it just usually proves to be much harder.
In our guide below, you’ll learn more about the technicalities and potential issues associated with reusing your company name to set up a new company, plus what you can and can’t do when it comes to reusing your old company name.
Reasons for reusing a business name
There are several reasons why you might want to reuse a company name, with one of the most common and obvious reasons being that you’ll be using a company name that’s already recognised by people.
Starting a new business entirely from scratch is one thing, but starting a company with a new name that no one reognises or has even heard of before can make it more difficult to get your company off the ground. By reusing the same company name, or at least one that sounds very similar, you’ll be using something that’s already recognised by people, which should make it easier to make your business a success.
However, just because it might be “easier” to reuse a company name, doesn’t mean that it’s always acceptable, or even legal, to do.
When is the reuse of a company name prohibited?
Under Section 216 of the Insolvency Act, the reuse of a company name is prohibited if it has been associated with the old, insolvent company for at least one year prior to the liquidation of the old company.
Directors of the old, liquidation company are prohibited from reusing the previous company name, or one that is similar enough to suggest an association, for up to five years after the liquidation of the company.
If an individual person can recognise a similarity and is able to associate the new company with the old company due to the name, then it is deemed to be too similar.
When is the reuse of a company name permitted?
There are some exceptions when the reuse of a company name is permitted.
While these exemptions may permit you to reuse a company name, it’s always recommended to seek advice from a licensed insolvency practice before you make any final decisions with regards to reusing a company name.
There are three specific rules/scenarios in which you are eligible to reuse your company name:
If you buy the business assets from the liquidator
You can purchase the whole business, including the business name, from the liquidator, under certain arrangements agreed upon by you and the liquidator. With this exemption, you must ensure that you send notice to all creditors regarding the insolvent company within 28 days of acquiring the company.
If you obtain permission from the court
You may also be permitted to reuse the company name if you seek permission from the court, also known as ‘leave’. In order to do this, you must make the application within seven days of the liquidation of the original company and leave must be granted within six weeks of the date of liquidation.
The court will make their decision to grant you the use of the old company name based on whether the successor company has sufficient finances in order and a competent team behind it.
If you use an existing name
If the company name has been in use for at least 12 months prior to the liquidation, then it may be possible to continue the use of the company name as long as the company wasn’t dormant during this time. This applies to groups of companies with the same or a similar name to the liquidated company so that the rest of the companies don’t lose the right to use their names, just because one company has become insolvent.
What happens if you reuse a company name without the appropriate permission?
If you reuse a company name without obtaining the appropriate permission beforehand or if you contradict the rules outlined in Section 216 of the Insolvency Act 1986, then you could face some serious consequences.
Some of these consequences could include a fine or even imprisonment in some cases. Furthermore, if the directors of the new company have operated the company under a prohibited name, they could lose the privilege of limited liability which means they could incur any company debts that have been accumulated during the period of their involvement in the company.
Further Reading On Liquidation and Limited Companies:
Some more great resources to help you manage your business: