Re-use of a Prohibited Name leads to automatic liability under section 217 Insolvency Act 1986

Subject to certain exceptions, a director of a company that has entered into an insolvent liquidation is restricted from being involved in the management of a company with the same, or similar name to the company that entered liquidation. This prohibition is contained within section 216 Insolvency Act 1986 and applies for 5 years from the date of liquidation. A breach of section 216 results in a director being personally liable for the relevant debts and liabilities of the second company incurred during the period of the breach.

Deputy High Court Judge Vos in the recent High Court ruling in PSV 1982 Ltd and Shaun Anthony Edward Langdon [2021] EWHC 2475 (Ch) has held that a director who was in breach of section 216 is automatically responsible under section 217 Insolvency Act 1986 for liabilities of the company established in proceedings against the company during a period of the breach, without the need for fresh proceedings to be brought against the director.

The Judge found that although the director was being fixed with a liability established in proceedings that they were not party to, they were close enough to the company that they would likely be aware of the proceedings and could have applied to have been made party to them. It was also felt that section 217 was purposed to protect creditors of the company and that the ordinary meaning of “relevant debts of a company” covers a liability which had been found in proceedings against the company. Therefore, on balance the risk of any injustice should lie with the director rather than the creditor.

This decision makes clear the importance of complying with section 216 and the associated Insolvency Rules. Any director who wishes to re-use the name, or a similar name, to the name of company they were a director of that enters an insolvent liquidation needs to ensure that they comply with the law or they will be faced with personal liability for the debts and liabilities of the new company as well as being committing a criminal offence.

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