Fresh start programmes for Limited Companies

Introduction

Many companies in financial difficulties find it necessary or desirable to start again. This is commonly called a "phoenix". To phoenix means to die and then come alive again. 

Sometimes liquidating a company is the only option worth looking at. In some circumstances it can be ideal for the company.

Where it is necessary or desirable for a fresh start Money Advice Direct can advise on the best way forward.

This will usually entail:

• The formation of a new limited company
• Negotiations with the bank
• Negotiations with the HM Customs and Excise and Inland Revenue 
• Protection of assets.
• The safeguarding of Personal Guarantees . 
• Legal protection at every step of the way in order divide the past from the present. 

Important Legal Note

Restriction of re-use of company names - S 216 - Insolvency Act (1986)

In order to stamp about abuse of the "Phoenix" method. There is now a restriction on the re-use of the same or similar company name for 5 years after liquidation. If a person acts in contravention of this section they are liable to imprisonment or a fine, or both.

Most people have heard, or had experience of, companies going into liquidation one day and opening up the next under a new name. The only way to re-use the old company's name is to get the courts permission and pay a material sum of money for the privilege.

Can I use the company name again?

It is an offence under section 216 of the insolvency Act 1986 for a person who has been a director or a shadow director of a company in insolvent liquidation, within the period of 12 months ending on the day before it went into liquidation, to be for a period of 5 years, a director or involved in any way in the management of any other company or business carried on under or known by a prohibited name, without leave of the court. A prohibited name is any name by which the liquidated company was known at any time in the 12 months prior to the liquidation, or any name so similar as to suggest an association with that company.

Section 217 of The Insolvency Act 1986 provides, amongst other things, that a person who is involved in the management of a company (or a person acting on instruction of someone) in contravention of Section 216 of The Insolvency Act 1986 is personally liable for the debts of the company that are incurred during the period of that involvement.

There are 3 exceptions to this prohibition:

1. Where a company acquires the whole or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement. Creditors must be notified.
2. Where an individual affected by section 216 applies for leave of the court to use the prohibited name. [There will be no breach within 7 days of the liquidation. If an application for leave is made there is no breach until six weeks and 1 day after the date of liquidation or the day on which the court disposes of the application (whichever is the earliest). ]
3. The court’s leave is not required where the company, though known by the prohibited name within the meaning of the section has:
   1. been known by that name for the whole period of 12 months ending with the day before the liquidating company went into liquidation, and
   2. has not at any time in those 12 months been dormant.

How to apply for leave:

PROCEDURE FOR APPLICATION FOR PERMISSION TO ACT UNDER SECTION 216 INSOLVENCY ACT

1. The relevant court for the application is any court having jurisdiction to wind up companies (S.216(5)1A).  It is not necessarily the court where the liquidation is taking place.  Remember that permission is also needed, following S.216(3) for any “business” carried on (otherwise than by a company) i.e. a sole trader or partnership and that neither of the excepted cases under rules 4.228 and 4.230 can apply to an unincorporated business.
2. The correct form of application is not a Part 8 Claim Form under the Civil Procedure Rules, 1998 but an originating application under Insolvency Rule 7.3. The application should be made without notice; [old “ex parte”] on notice to the Secretary of State for Trade and Industry and the Official Receiver in compulsory liquidation cases. The Official Receiver, the Secretary of State and the liquidator should not be respondents to the application. The address for service on the Secretary of State is Prosecution Section, Room 110, PO Box 203, 21 Bloomsbury Street, London WC1B 3QW.
3. The evidence in support of the application may however be given by way of witness statement. This follows from the amendment made to the Insolvency Rules r.7.57 by the Insolvency (Amendment) (No 2) Rules 1999 which says “where the Rules provide for the use of an affidavit, a witness statement verified by a statement of truth may be used as an alternative”.
4. The court may request the liquidator to make a report (r.4.227) and at the hearing the Secretary of State or the Official Receiver may appear and call the attention of the court to any matters which seem to him to be relevant. S.216(5) IA and the Official Receiver/Secretary of State is entitled to the costs of attending.