Phoenix companies and prohibited names

If a company goes into insolvent liquidation, anyone who was a director or shadow director in the 12 months before liquidation is barred for five years from running another company or business under the same name or a name similar enough to suggest an association, unless the court gives permission or one of three exceptions in the Insolvency Rules applies. The rule is in section 216 of the Insolvency Act 1986. Breaking it is a criminal offence and, under section 217, makes the director personally liable for the new company’s debts.

Who does the section 216 restriction apply to?

Section 216(1) applies to a person who was a director or shadow director of the liquidating company at any time in the 12 months ending with the day before it went into liquidation. The Insolvency Service’s guidance says the ban covers anyone who acted as a director in that period, whether formally appointed or not, and stresses that it applies even where there was no misconduct or dishonesty in the failure.

The company must have gone into insolvent liquidation, which section 216(7) defines as liquidation at a time when its assets are insufficient to pay its debts, other liabilities and the expenses of the winding up. That covers both creditors’ voluntary liquidation and compulsory liquidation. A solvent members’ voluntary liquidation does not trigger it, and nor does administration on its own unless the company later moves into insolvent liquidation.

What is a prohibited name?

Under section 216(2) a name is prohibited if the liquidating company was known by it at any time in the 12 months before liquidation, or if it is so similar to such a name as to suggest an association with that company. Section 216(6) makes clear that the names a company is known by include both its registered name and any name under which it carries on business.

The Insolvency Service gives examples. If the liquidated company was ABC Limited trading as XYZ, a former director must not be involved with a company registered as ABC Limited or XYZ Limited, a company with a different registered name that trades wholly or partly as ABC or XYZ, or any name so similar as to suggest an association. The same applies to an unincorporated business such as a sole trader. Trading names can include registered trade marks and brand names. Where the old company used the director’s own name, for example John Smith Builders Limited, the personal name is itself a prohibited name unless an exception applies.

What exactly is banned, and for how long?

Section 216(3) bars the person, for five years beginning with the day the company went into liquidation, from:

• being a director of any other company known by a prohibited name
• being concerned or taking part, directly or indirectly, in the promotion, formation or management of such a company
• being concerned or taking part, directly or indirectly, in carrying on a business under a prohibited name other than through a company

The words “directly or indirectly” are wide. A former director who steps back from the board but still runs the new company day to day, or who manages it through a relative, is still caught. The restriction applies across England, Wales and Scotland. Companies wound up in Scotland follow Part 12 of the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 for the exceptions, which the guidance describes as similar to the English rules.

What are the three exceptions?

First exception: buying the business from an insolvency practitioner (rule 22.4)

Rule 22.4 of the Insolvency (England and Wales) Rules 2016 applies where the whole, or substantially the whole, of the business is acquired under arrangements made by the liquidator, or before liquidation by an administrator, administrative receiver or supervisor of a company voluntary arrangement. The director must give notice to every creditor whose name and address is known or reasonably ascertainable and publish it in the Gazette. The notice can be given before the arrangements complete but no later than 28 days after completion, and it must be given before the director acts. Rule 22.4(3) and rule 22.5 prescribe its contents, including a statement that breach of section 216 is a criminal offence.

The Insolvency Service highlights several traps. Notice cannot be given by someone who has already breached section 216 (rule 22.4(5)). Buying only the right to use the name is not enough, because the whole or substantially the whole of the business must be acquired. It is the director’s responsibility, not the insolvency practitioner’s, to make sure the notice is given.

Second exception: applying to court within seven business days (rule 22.6)

If the director applies for the court’s permission no later than seven business days from the date the company went into liquidation, they may act under the name for up to six weeks from that date, or until the court decides, whichever comes first. If the court has not decided within six weeks, the ban applies again.

Third exception: an established company already using the name (rule 22.7)

Permission is not needed for a company that has been known by the prohibited name for the whole of the 12 months ending with the day before the liquidating company went into liquidation, provided it has not been dormant at any time in those 12 months. The guidance says this exception does not cover unincorporated businesses, and a company that filed dormant accounts for any part of the period cannot rely on it.

How do you apply for the court’s permission?

An application can be made at any time during the five years, but outside rule 22.6 the name cannot be used until permission is granted, and permission is not retrospective. Rule 22.2 requires at least 14 days’ notice of the application to the Secretary of State, who may appear at the hearing or make representations. Under rule 22.3 the court may ask the liquidator for a report on why the company became insolvent and the applicant’s apparent responsibility. The Insolvency Service says it may draw the court’s attention to points such as whether the business or name was paid for, relevant convictions, disqualification or bankruptcy, and creditor complaints.

What happens if a director breaks the rule?

• Criminal liability. Section 216(4) makes a breach an offence punishable by imprisonment or a fine, or both. Schedule 10 sets the maximum on indictment at two years, a fine, or both.
• Personal liability for debts. Under section 217 a person involved in the management of a company in breach of section 216 is personally responsible, jointly and severally with the company, for all debts and liabilities incurred while they were involved.
• Liability for those who follow instructions. Section 217(1)(b) extends the same liability to anyone involved in management who acts on instructions from a person they know is in breach. Section 217(5) presumes that someone who has done so once was willing to keep doing so.
• Disqualification. The Insolvency Service lists disqualification as a further consequence.

Section 217 liability is strict. Creditors of the new company do not need to show they were misled; they only need to show the debt was incurred while the person was involved in management in breach.

How might this work in practice?

Illustration only. Greenway Kitchens Limited enters creditors’ voluntary liquidation on 1 March. Its director wants to keep trading under the Greenway brand through a new company. Three routes are open:

1. The new company buys the whole business, including goodwill, equipment and the name, from the liquidator at a properly negotiated price, and the director sends the rule 22.4 notice to creditors and publishes it in the Gazette before trading as Greenway.
2. The director applies to court by the seventh business day after 1 March and trades under the name only until the court decides or six weeks pass.
3. The director chooses a clearly different name, such as one with no reference to Greenway.

If the director instead starts trading as Greenway Interiors Limited the week after liquidation without notice or an application, they commit an offence and are personally liable for that company’s debts from the first day.

Is a phoenix company always unlawful?

No. Section 216 does not stop a director buying back a failed company’s business; it controls the reuse of the name. The concern with phoenix trading is a business carrying on with the same people while debts are left in the old company. Where the buyer is connected, the sale price and process are scrutinised: a sale below value can be challenged as a transaction at an undervalue, and sales out of administration to connected parties have their own safeguards, explained in our guide to pre pack administration. Our page on when directors are personally liable sets section 217 alongside the other exceptions to limited liability.

What mistakes do directors make?

• Trading under the old name before the rule 22.4 notice has been given and published.
• Relying on a dormant company registered under a similar name, which fails the rule 22.7 test.
• Missing the seven business day deadline for a rule 22.6 application, then continuing to trade while waiting for a hearing.
• Forgetting trading names, websites, email addresses and signage. The guidance says any change of name must be reflected in all public facing information.
• Assuming a spouse or employee can front the new business while the former director manages it behind the scenes.

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Related Accountapedia entries

• Can you be a director again after liquidation
• Wrongful trading and director liability
• Investigations into director conduct after insolvency
• Liquidators’ powers to require information
• What happens if you act as a director while disqualified

Sources

• legislation.gov.uk: Act 1986 c. 45, section 216
• legislation.gov.uk: Act 1986 c. 45, section 217
• legislation.gov.uk: Act 1986 c. 45, schedule 10
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: SI 2016/1024
• GOV.UK: Re use of company names

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.