What is the Impact of Section 216 in an Administration?
Section 216 of the Insolvency Act 1986 does not immediately impact companies in administration since the legislation refers specifically to the restrictions on using a company name again the following the liquidation of a limited company.
The rule stipulates that directors wishing to start up another company must wait at least five years before doing so with the same name, or similar trading name, of their former company unless they have specific leave of the court. Failure to conform to the law in this instance leaves directors open to both criminal and civil liability.
In cases of administration, however, it doesn’t apply yet. That said, directors finding themselves under administration would do well to think ahead. Assuming the administration goes well, the company may continue for many years to come but, assuming it doesn’t, other possible exit strategies might include either a Creditors Voluntary Liquidation or Compulsory Liquidation. In these instances, you will find yourself affected by 216 and might find yourself unable to continue in business with your company name.
Take Legal Advice to Avoid Losing the Right to Your Name
You should first discuss this with your administrator and take the correct legal advice. One suggestion for companies in administration that wish to protect themselves against the possibility of losing the right to their name, however, would be to utilise the exception outlined in Rule 4.228 of the Insolvency Act.
“Where a company (“the successor company”) acquires the whole, or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement under Part I of the Act, the successor company may for the purposes of section 216 give notice under this Rule to the insolvent company’s creditors.”
As per 2.2.28, you would Gazette your intention (advertised in the London Gazette) during the Administration, thereby offering you some protection should the company go into liquidation at a later date.
Exceptions under Pre-Pack Administration
Where companies agree to a Pre-pack, there is a notable exception to 216. If, Directors who wish to acquire and continue to use their old company name, are permitted to do so via seeking the approval of the court or via written approval of the old company’s creditors.
Need Guidance?
If you are considering putting your business into administration, you should always seek professional advice in advance. We’re always happy to help, simply give us a call on 0800 074 6757 for a no-obligation, free consultation. or chat using the Live Chat box on the bottom right of the screen.
