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TLT’s Insolvency Team in Belfast were recently successful in obtaining the leave of Court allowing the Director of a liquidated company to continue to use the trading name of the liquidated company with a new company. The Insolvency (Northern Ireland) Order 1989 makes provision for such an application to be made to use what would otherwise be a “Prohibited Name”.
A former Director of a liquidated company is prohibited from acting as a Director in respect of any other company which bears a name similar enough to the liquidated company so as to suggest an association with the liquidated company. Importantly for company Directors, it is an offence to use a Prohibited Name without the leave of Court. There is also the possibility for the Director being fixed with a monetary liability, as well as being referred to the Director’s Disqualification Unit.
Using a Prohibited Name, can result in a Director being held personally liable for part of the debt of the liquidated company as he would be profiting from what is arguably an asset of the liquidated company.
Perhaps more importantly, Directors should note that if they are found guilty of improperly using a Prohibited Name, the punishment can be up to 2 years in prison or a fine, or both. It is therefore important to tread extremely carefully when dealing with these issues.
Directors should also be aware that, any action by creditors or any criminal sanctions in respect of a Prohibited Name could also increase the chances of a referral to the Director’s Disqualification Unit.
With assistance and advice from TLT’s Insolvency Team, Employment Team, and Corporate Team, our client Director was able to transfer the business assets of his old company (which was subsequently placed into liquidation), to his new company, and he was able to continue using the trading names associated with his old company without committing an offence in respect of a Prohibited Name.
An application for leave to use a Prohibited Name is extremely time sensitive both in terms of when the application is made and also when it is disposed of by the Court so it is vital that Directors take proper advice in advance of placing their company into liquidation so that the necessary preparatory steps can be taken in relation to the leave application. There will inevitably be a lot of moving parts to coordinate.
TLT guided the Director through the liquidation process and urgently issued the Application following the liquidation of the old company. The Court was content with the evidence provided and the Order was granted.
Our client Director is now able to continue trading with his new company with limited disruption to his clients and employees in that, whilst the company name has changed, he is able to use the same brand names he has used for decades.
An application of this type is not common in Northern Ireland hence the dearth of local caselaw on the topic.
However, it has long been predicted that insolvency levels will surge as we emerge from the pandemic and it may well follow that there could be an increased demand for applications of this type. In many cases, Directors will have had, through no fault of their own and entirely outside of their control, difficulties due to the pandemic. Where any such Director may want to start fresh with a new company, they may wish to consider whether it would be appropriate and commercial to retain their trading name.
The Insolvency Team at TLT have the necessary experience and expertise to advise on the merits of making such an application so please do not hesitate to get in touch with us.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.
05 April 2022
News 17 JUNE 2022