When a company goes into liquidation, many directors explore the possibility of starting a new business or continuing the same trade under a fresh structure. However, UK insolvency law sets strict rules on what directors can and cannot do when it comes to the reuse of a company name. Section 216 of the Insolvency Act 1986, often referred to as the “prohibited name” rule, restricts directors from using a name that is too similar to the old company’s name after liquidation. Breaching this rule is a criminal offence and can also expose directors to personal liability for the new company’s debts.
Understanding what counts as a prohibited name is essential for any director considering restarting or continuing their business after liquidation. It ensures compliance with the law and protects directors from significant legal and financial risk.
Understanding the purpose of Section 216
Section 216 was created to prevent directors of failed companies from leaving behind debts, assets, or liabilities and simply starting again under the same or similar name. This prevents the misleading of creditors, suppliers and customers who may believe they are still dealing with the original company.
The law applies only to directors (and shadow directors) of a company that has gone into insolvent liquidation, and it restricts them for a period of five years following the liquidation date. During this time, directors cannot use or be involved with a business that trades using a prohibited name unless they fall within certain legal exceptions.
What is a prohibited company name under Section 216
A name becomes “prohibited” if it meets any of the following criteria:
1. The same registered company name
If the new business attempts to use the exact same registered company name as the liquidated company, this is automatically prohibited. For example, if “ABC Construction Ltd” enters liquidation, you cannot set up a new “ABC Construction Ltd” within five years.
2. A trading name used by the old company
Section 216 also applies to trading styles, not just the official Companies House name. If the liquidated company previously traded as “Norfolk Roofing Solutions,” then a director of the old company cannot begin trading under that same style.
3. A name that is so similar it may cause confusion
This is the most misunderstood part of the law. Even if the name is not identical, it is prohibited if it is so similar that the public or creditors could believe it is the same business. Examples include:
- “ABC Construction Ltd” → “ABC Construction UK Ltd”
- “Norfolk Roofing Ltd” → “Norfolk Roofers Ltd”
- “GreenTech Energy Ltd” → “GreenTech Renewables Ltd”
Simply adding words like UK, Group, Holdings, or Ltd does not make the name different enough.
What else counts as a prohibited identity
Section 216 goes further than just names. Even if the company name is different, a director can still be in breach if the branding, contact details, or customer-facing identity are essentially the same. This includes:
- Reusing the same website or domain name
- Keeping the same phone number
- Using identical branding, logos or marketing materials
- Operating from the same business premises
- Presenting the new company as a continuation of the old one
If the identity of the business feels the same to customers or creditors, authorities may treat it as a prohibited name.
Why the rules exist
These restrictions prevent “phoenixing,” where a company closes down, walks away from its debts, and reappears under the same name. The law protects suppliers, HMRC, lenders and customers from being misled and ensures fairness in the marketplace.
For genuine business rescue, the law provides specific legal routes to allow name reuse in certain circumstances, such as a court order, proper notices to creditors, or purchasing the business from the liquidator. Without following these exceptions, name reuse is unlawful.
Consequences of using a prohibited name
Breaching Section 216 carries severe consequences for directors. These include:
- Criminal prosecution
- Personal liability for all debts of the new company
- Director disqualification
- Potential fines or imprisonment
This makes compliance essential for anyone planning to continue operating after liquidation.
How Simple Liquidation can help
Directors are sensitive to the costs of a liquidation, whether it be because the company is solvent and a cost-effective route to liquidate is required, or because a high cost can often prevent the directors taking action, leaving them exposed to the risks of continuing to trade an insolvent company.
The Insolvency Practitioners behind Simple Liquidation have over 30 years’ experience and have dealt with hundreds of solvent and insolvent businesses throughout their careers, helping directors to meet their obligations and reduce the stress of dealing with an insolvent company.
Our Insolvency Practitioners are both members of the Association of Business Recovery Professionals (known as R3) and we are also members of the Insolvency Practitioners Association.
We are happy to talk to you and can offer professional, helpful advice in regard to any insolvency matter. Please get in touch for a no-obligation conversation, and we’ll be able to advise the best course of action for you and your business.