As a general rule you are not permitted to use the same or similar name for a period of 5 years if you were:
- A former director of a liquidated company (“Oldco”); and
- this was within 12 months prior to its liquidation.
What does the same or similar mean?
The test of what is the same or similar is objective. You have to consider whether someone would confuse the names and think there is a connection or they are the same company.
A good example of similar would be “Bailoran Solicitors Ltd” and “Bailoran Law Ltd”
Most people would think the companies are connected if not the same.
The offence is to protect against companies taking advantage of this similarity. E.g. a supplier may extend credit to a similar company thinking it was the same.
A breach occurs if you act as a director or shadow director of a business with a similar or the same name within that 5 year period after the liquidation of Oldco.
Practical examples of acting as a director or shadow director would be if the staff called you the boss, if your business card or email said director or if you had sole access to the business bank account or answer the telephone with that infringing name etc.
It is NOT a breach if there is a company that exists with the same or similar name but you are NOT a director or shadow director OR if you are a director but the name is NOT the same or similar.
Penalties for breach are fines and/or imprisonment and personal liability for the new businesses debts.
Ignorance is no defence especially as the liquidator of the Oldco should notify you beforehand to prevent you committing any breach.
There are however 3 exceptions:
- If the former directors are also directors of another company with the same or similar name that has been trading for a period of at least 12 months prior to the date of liquidation. E.g. Part of a group structure of companies.
- If the directors apply to court for permission, or
- If the directors serve notices on the creditors of the liquidated company that they INTEND to be controlling a business using the same or similar name in the future. This must also be advertised in the London, Edinburgh or Belfast Gazette as appropriate.
There are strict time limits applied to these exceptions but as long as the former directors fall within the exceptions they are protected from the penalties above.
If you fall outside of the time limits then you will be in breach.
Should I continue to use the same or similar name?
Factors to consider when choosing to use the same or similar name include:
- What are the costs to buy the goodwill and assets of the Oldco?
- What would be the alternative cost to using a new name e.g. change of signs, logos, website, leaflets, business cards, promotional gifts?
- Is the goodwill in the Company name or you? i.e. are your clients or customers connected to the name or is their loyalty to you?
- Would it be preferable to use a different name to distance any association with the liquidated Company?
- Are employees affected by this and any future trading?
- Do I need to use the Oldco’s suppliers moving forward and what would they prefer?
The exceptions are to inform all those who are at risk that they are now dealing with a different company so they can take whatever precautions they wish.
Practicalities of Using the Same or a Similar Name
This may affect the position with suppliers or government bodies. You may be refused credit or time to pay. Landlords and banks may want personal guarantees moving forward, if they were not in place before. Please take this into consideration as it might be simpler to change the company name.
If you are in breach, on enforcement it is commonplace for the Insolvency Service to request that you change the Company name or step down as director. This request should be heeded unless one of the exceptions applies as if you refuse then there is little option for them but to pursue the enforcement and as explained above the consequences are severe.
Prevention is better than cure so if you are considering a voluntary liquidation then you should always take independent legal advice before the liquidation date to give you the best prospect of relying on one of the three exceptions.