Thursday, 14 January 2010

What's in a name?

Phoenix companies rising from the ashes of firms which have gone bust are on the increase in today’s tough economic climate. But our Senior Partner, Graham Davies, said starting again may not be so simple.

“Given the recession, there’s been a real increase in the number of companies who go bust one day and then reappear the next, carrying on with the same business and directors. There’s no problem with this as long as you stay within the rules, but the law is tough on anyone who fails to follow the procedures correctly.”

Graham said it was a criminal and civil offence for a director of an insolvent company to reuse its name, or something similar to the same name, within five years. “This rule applies to anyone who was a director of the company during the 12 months prior to it failing. Usually only the civil action will be taken, but this in itself can still bring tough financial penalties.”

In a civil action, a director could face an unlimited fine and be held personally liable for all the relevant debts of the company that traded under the prohibited name.

“But subject to conditions, a director may legitimately be able to reuse the company name,” said Graham. “You can only do this if you have permission from the court; if the successor company has been trading under the prohibited name for 12 months before the old company goes into liquidation; or if the new company acquires all or most of the business of the failed company from a liquidator.

“The best advice would be that if you’re a director of a company that’s gone into liquidation and you want to use a similar name for your new venture, ask the liquidator of the original company for guidance. It’s understandable that you may want to start a new business as soon as possible, but starting a phoenix company certainly isn’t plan sailing, and you must proceed with caution.”