Opinion

Avoid making a drama when it comes to your new business name

28th June 2017

Avoid making a drama when it comes to your new business name

"A rose by any other name would smell as sweet," said Shakespeare’s Juliet, for whom it made no difference that Romeo's surname was that of her family’s arch-rivals, the Capulets. 

However, according to one leading insolvency lawyer, in the business world there is often too much goodwill invested in trading names for them to be discarded quite so lightly.

David Ellis, Head of Insolvency at Higgs & Sons believes that the name of a business can become a significant problem for directors looking to start again after business failure.

“A director will be keen to continue to use the name by which the business is known, having invested significantly in developing it,” explains David. “But of course they will not want to fall foul of the law.

“Breach of the Insolvency Act restrictions regarding company names give rise to criminal liability as well as hitting the director in the pocket.  If the new business were to fail, the director would face personal responsibility for all its debts.”

Partner David who is both a Solicitor and a Licensed Insolvency Practitioner believes directors of companies need to be fully aware of the implications of using names that were associated with a failed business, before seeking to use them for any future purpose.

“The basic provision, as set out in section s216 Insolvency Act applies whenever a company goes into liquidation.  It imposes restrictions on all its directors that prevent them being involved in the management of any other business using a similar name for the next five years. 

“The restrictions apply even if the business has been bought off the liquidator and the buyer wishes to take over the senior employees including the former directors to help him run it.”

David is keen to highlight that the courts have interpreted similar names very widely; for example:

“If Bob Smith runs a business by the name of Bob Smith Auto Valeting Limited then he could not work in management of any subsequent business using the names ‘Bob Smith’, ‘Auto Valeting’ or ‘BSAV’ even as each is likely to be seen as a close enough name to suggest an association with the old business.” 

There are some exclusion from the rules however:

“A name can be reused if the director has obtained a court order permitting this; alternatively there are other limited exceptions that may apply.  However, unless one of the exceptions can be shown to apply, allowing the new business to use a prohibited name can be a very costly mistake for the directors.”

David Ellis concludes:

“Clearly choosing a new name that describes the business without breaching the law can be very difficult. We would recommend that anyone looking to start a new business in such circumstances should seek advice from a specialist insolvency lawyer to discuss the provisions or exclusions that may apply.”

To speak to a member of the Higgs & Sons Insolvency team, call 0345 111 5050 or go to Insolvency

 

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