Prohibited names

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The purpose of section 216 of the Insolvency Act 1986

The relevant provisions are sections 216 and 217 of the Insolvency Act 1986 (IA 1986).

These provisions are aimed at preventing phoenix companies from causing a disadvantage to creditors by creating more transparency surrounding the re-use of company names.

A phoenix company may typically be where a director or directors trade a successive company with a similar name, taking the valuable parts of the company in liquidation and leaving behind its creditors. The re-use of the name is seen by many as a way of deceiving creditors into thinking they are dealing with the same company. This practice, known as 'phoenixing', is therefore met with distrust by creditors.

Who is bound by IA 1986, s 216?

A person who was a director or shadow director of a company which goes into an insolvent liquidation (defined by IA 1986, s 216(7)) at any time in the 12 months immediately prior to liquidation is caught.

It also applies to a person who is involved in the management of the company and acts or is willing to

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Restructuring & Insolvency analysis: The High Court has dismissed a claim brought by an assignee of creditors' debts against individuals who were directors of a company in liquidation and a second company which was operating under a prohibited name pursuant to section 216 of the Insolvency Act 1986 (IA 1986). The defendants successfully argued that the second company fell within ‘The Third Excepted Case’ under the Insolvency Rules 2016 (IR 2016), SI 2016/1024, r 22.7, and that the second company had been known by its name for the entire 12 months prior to the first company's liquidation and had not at any time in those 12 months been dormant. The case is thought to be the only reported case on the true meaning and effect of the second of the two elements of The Third Excepted Case and demonstrates that the principles of corporate accounting law on non-dormancy cannot be translated from an accounting to an insolvency scenario. The concept of phoenix syndrome and the principle against doubtful penalisation were also considered. Written by Laura Newbery, legal director at Addleshaw Goddard LLP.

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