Navigating Section 216 of the Insolvency Act 1986? You’re in the right place.
Section 216 rules explained, risk reduced, your future protected.
What is Section 216?
The actual legislation is here: Insolvency Act 1986
Section 216 of the Insolvency Act 1986 is designed to prevent directors of a failed company from simply starting a new business with the same or a very similar name, leaving behind the old company’s debts. This is often referred to as “phoenixing”.
If you are a director of a company that has gone into insolvent liquidation, this piece of legislation restricts your ability to be a director of, or involved in the management of, another company with a prohibited name for a period of five years from the date of liquidation. Breaching these rules can lead to serious consequences, including personal liability for the new company’s debts and even criminal prosecution.
However, the legislation includes specific exceptions. Understanding if and how these apply to your situation is crucial.
How we can help
We specialise exclusively in matters related to Section 216 of the Insolvency Act 1986. Our expertise empowers directors to make informed decisions when their company faces insolvency.
Expert guidance
Receive clear, concise advice on how Section 216 applies to your specific circumstances. We break down the complex legal language into practical steps you can understand.
Exploring your options
Learn about the three key exceptions that may permit you to legally reuse your company name. We can assist you in making the right choice and implementing any steps required to remain compliant with the law.
Always on time
Purchasing the business through a licensed insolvency practitioner.
Hard working
Applying to the court for permission.
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Using the name under specific circumstances for a short period.
Risk assessment
Understand the potential personal risks involved. We help you evaluate the consequences of non-compliance and take the necessary steps to protect yourself from personal liability and legal action.
Take control and understand your position
The rules surrounding Section 216 are strict, but they are not impossible to navigate. With the right advice, you can understand your legal standing and plan your next steps effectively. Do not leave your future to chance.
Ready to find clarity? Contact us for a confidential, no-obligation discussion about your situation.
Frequently asked questions
Understanding Section 216 of the Insolvency Act can be complicated, but it is vital for any director facing company liquidation. We have compiled the most common questions we receive to help clarify your position and guide your next steps.
The basics of Section 216
Section 216 of the Insolvency Act 1986 is a piece of legislation designed to prevent "phoenixing”. This happens when directors of a failed company set up a new company with the same or a very similar name, leaving the old company's debts behind. This legislation restricts directors from reusing a "prohibited name" for five years after the original company enters liquidation.
A prohibited name is the name of the insolvent company or any name so similar that it suggests an association with the failed company. This includes trading names, trading styles, and any “Trading as” business names, not just the registered name at Companies House. For example, if "Smiths Logistics Ltd" enters liquidation, "Smiths Transport Ltd" would likely be considered a prohibited name.
The requirement to comply with Section 216 applies to anyone who has been a director or shadow director of the insolvent company at any point in the 12 months before it entered liquidation. If you fall into this category, you cannot be a director of, or involved in the management or promotion of, another company with a prohibited name unless you follow, and comply with, specific exceptions.
Risks and consequences
Non-compliance can carry severe penalties. It is a criminal offence that can lead to a fine or even imprisonment (or both). Furthermore, under Section 217 of the Insolvency Act 1986, you can become personally liable for all the debts of the new company incurred if you were acting as its director whilst in breach of the legislation.
No. The legislation is to prevent anyone acting as a director, shadow director or anyone in any way, whether directly or indirectly, being concerned or taking part in the promotion, formation or management of any such company. Do not take the risk.
Exceptions and solutions
Yes, there are three main exceptions outlined in the Insolvency Rules which allow you to legally reuse a company name:
- Notice Exception: Buying the whole or substantially the whole of the insolvent business from the Liquidator and publishing a specific notice in the Gazette and formally notifying the insolvent company’s creditors.
- Court Permission: Applying to the court for leave (permission) to act as a director of the new company.
- Existing Use: If the new company has already been known by the ‘prohibited’ name, and has been actively trading for at least 12 months before the date of liquidation of the old company.
If you buy the assets of the old business from the liquidator, you can often reuse the name if you notify creditors. You must publish a formal notice in the London Gazette and send a copy to all creditors of the insolvent company. Crucially, this must be done within 28 days of the purchase. If you miss this deadline, this exception is no longer available to you.
Not necessarily, however, the rules are very strict. A small error in the wording of a notice or missing a deadline by one day can render your protection void. Contact us today to obtain professional advice to ensure you are fully compliant and protected.
Getting help
If you have already breached the rules, the situation is urgent, but not necessarily hopeless. You may need to apply to the court for permission immediately or change the company name. You should contact us straight away for a confidential discussion so we can assess your options and limit your exposure to risk.
We specialise in this specific area of insolvency law. We can review your situation, help you determine if a proposed name is prohibited, guide you through the process of buying back assets, and handle the drafting and publishing of statutory notices. Our goal is to ensure you can continue business legally and without fear of personal liability.
Disclaimer: The information on this page is for general guidance only and does not constitute legal advice. Every insolvency case is unique. Please contact us for advice tailored to your specific circumstances.