Can I Start a New Company After Liquidation 

Directors commonly wonder if it’s possible to simply start a new company after liquidation and begin again.

While registering a new limited company is not prohibited, there are strict rules about how closely it can be related to the one that’s just closed, as I’ll explain below.

Can You Start a New Business After Going Through Liquidation?

You can, in principle, start a new company after liquidation; the law does not prevent it. Directors are allowed to operate multiple businesses simultaneously or sequentially. This freedom is vital for fostering business innovation and economic growth.

However, specific conditions apply, especially if the new venture shares a name or closely resembles the identity of the liquidated entity.

Can you Keep a Company Name After Liquidation?

You are not allowed to keep a company name after liquidation, start another company with the same name unless you apply to the court, or purchase it from the liquidator at fair value.

The laws are in place to prevent the practice of ‘phoenixing‘, which is when a new company with a similar purpose arises from the ashes of the old.

This practice can lead to significant legal complications if it’s used to avoid debt. Creditors of the defunct company may view a new entity with a similar name as an attempt to sidestep financial responsibilities.

What are the Legal Implications of Setting Up a New Company After Liquidation?

The Insolvency Act of 1986, particularly Section 216, was designed to address these issues and ensure directors behave appropriately.

The legislation under Section 216 outlines that a director involved with a company in the 12 months preceding its liquidation cannot do the following for a period of five years following the company’s dissolution:

Section 216 prohibits:

• Becoming a director, or being involved in the formation, promotion, or management of any company with a name that is the same or substantially similar to that of the liquidated company, without obtaining court approval.
• Use a trading name similar to the liquidated company that might suggest a continuation of the previous business.

Despite these restrictions, there are pathways for directors to legally proceed with a new company:

What are the Rules Surrounding the Reuse of Company Names?

1. Directors can apply to the court for permission to use the name of the liquidated company. This process, known as applying for court leave, must be initiated within seven days of the company’s liquidation.
2. If the new business was trading under the contested name 12 months before the liquidation without being dormant, it might be possible to continue using the name. However, specific conditions must be met to ensure this is done legally and transparently.
3. Purchasing the Company Name from the Liquidator: Directors may have the opportunity to buy the name of their liquidated company from the liquidator. This process allows the director to retain the company name as an asset, potentially for use in a new business venture.

5 Considerations When Starting a New Company After Insolvency

Below we list the main points you should consider when voluntarily liquidating a limited Company and starting again:

• HMRC May Insist on a Security Deposit: If the old company owed HMRC significant tax debts, they may require a deposit or security bond when setting up a new company. This serves as protection against perceived risks from previous defaults, with the amount based on the prior debt.
• Sale of Assets at Correct Value: Assets must be sold from the old company to the new company (‘newco’) at fair market value, necessitating an independent valuer and oversight by a licensed insolvency practitioner. This approach, common in scenarios like football clubs, facilitates job retention and prevents receivership or bankruptcy.
• Personal Guarantees Remain: Liquidating the company does not dissolve personal guarantees held by directors or shareholders. These agreements with finance providers are highly enforceable, obligating directors to repay personally guaranteed finance.
• TUPE Does Not Apply in Liquidation: The TUPE regulations, safeguarding employees during corporate sales, do not apply in liquidation scenarios. This allows for the renegotiation or termination of employment contracts in both compulsory or voluntary liquidation.
• Limited Credit Accounts with Suppliers: Re-establishing credit terms with suppliers for a new company might be challenging without adequate financial history or trust. Suppliers may require upfront payments or shorter credit terms initially.

How Company Debt Can Assist You

Starting a new company after liquidation is a complex process that requires careful legal navigation and strategic planning. Our licensed insolvency practitioners are ready to guide you through every step, ensuring you make informed decisions for your new venture.

For comprehensive advice and support, reach out to Company Debt. Let’s navigate your next steps together.

FAQs on Starting a New Company after Liquidation