Case law: Director ordered to pay £100,000 for continuing to use trading name of former insolvent company
Promoters of a company deciding on a trading name should ensure the name they choose is not a company/trading name previously used by a now insolvent company of which they were a director, or risk a penalty of up to the entire turnover of the new company.
A limited company had used a particular trading name. When the company went into liquidation, one of its directors set up a new limited company of which he was sole director - then used the same trading name.
It is a criminal offence for a director of a company that has gone into insolvent liquidation to be involved in forming, promoting or managing another business entity that uses the same (or a similar) name as the insolvent company (whether as its registered name or a trading name) in the five-year period after the insolvency. However, there is a defence if they have the court's permission, or certain exceptions apply. The courts can make a confiscation order against anyone who does so.
A confiscation order was made against the sole director of the new company requiring him to pay £100,000 (plus legal costs). When he appealed, the Court of Appeal said:
confiscation orders can be made against individuals in these circumstances; and
when calculating how much is recoverable, the court can base their calculation on the entire turnover for the entire period when the prohibited name is being used, and not just the net profit during that period.
Promoters of a business deciding on a registered or trading name for it should ensure the name they choose is not a name previously used by a company they were director of, which has gone into insolvent liquidation, or risk a penalty up to the entire turnover of the new business
Authorised and Regulated by The Solicitors Regulation Authority. Authority number 591294.
For details of the professional rules governing the conduct of solicitors go to www.sra.org.uk/code-of-conduct.page