Usually, yes.

There is no general rule that prevents someone from becoming a director again simply because a previous company entered insolvent liquidation.

You can normally:

• Form another limited company
• Become a director of an existing company
• Own shares in another company
• Carry on the same type of trade
• Employ staff again
• Deal with some of the same customers and suppliers
• Purchase assets from the insolvent company through the proper process

The important qualifications are that you must not be subject to a restriction preventing you from acting as a director and you must comply with the rules concerning the old company’s name and assets.

No.

A Scottish CVL can remain open for months or sometimes considerably longer while the liquidator completes the administration of the old company.

You do not normally have to wait for the old company to be dissolved before becoming involved in another company.

However, the old and new companies must be treated as separate legal entities.

You cannot simply move assets, money, stock, contracts or other property from the insolvent company into the new company because you previously controlled both businesses.

Yes.

There is nothing inherently improper about a director whose business has failed using their experience to start again in the same industry.

For example, a director of an insolvent:

• construction company can start another construction business;
• restaurant company can operate another restaurant;
• engineering company can start another engineering business; or
• professional services company can provide similar services through a new company.

The Insolvency Service itself recognises that starting again can have positive outcomes, including preserving employment and maintaining useful businesses.

Problems arise not because the trade is similar, but where the new business is used improperly—for example to evade debts, conceal assets, breach name restrictions or repeat conduct that harmed creditors previously.

The term “phoenix company” is often used where the business of an insolvent company continues through a new company involving the same directors.

That is not automatically illegal or improper.

There is an important difference between a legitimate restart and abusive phoenixism.

A legitimate restart

A director starts another company, complies with the prohibited-name rules, acquires any old-company assets properly, keeps the companies separate and operates the new business responsibly.

Abusive phoenixism

A series of companies may be used to incur liabilities, leave debts unpaid and repeatedly move the business into new entities in order to avoid creditors or for fraudulent purposes.

It is the latter type of behaviour that can result in serious investigation and enforcement action.

This is where directors need particular care.

Section 216 of the Insolvency Act 1986 places restrictions on directors reusing the name of a company that has entered insolvent liquidation.

If you were a director or shadow director of the insolvent company at any time during the 12 months before liquidation, you are generally restricted for five years from being involved with another company or business using a prohibited name unless a statutory exception applies or the court gives permission.

The restriction applies to Creditors’ Voluntary Liquidations as well as compulsory liquidations.

A prohibited name is wider than simply reproducing the old company’s registered name exactly.

It can include:

• The registered name used by the insolvent company during the 12 months before liquidation
• A trading name used by the company during that period
• A brand name by which the company or its business was known
• A sufficiently similar name that suggests an association with the insolvent company

For example, changing a company called “ABC Building Services Limited” to “ABC Building Solutions Limited” does not necessarily avoid the restriction.

The issue is not simply whether the spelling is identical. A sufficiently similar name that suggests an association with the old business can also be prohibited.

The restriction can also apply where the prohibited name is used as a trading style rather than as the registered company name.

Potentially, yes.

The restriction is not limited to becoming a director of another limited company.

It can also prevent you from being directly or indirectly concerned in carrying on another business using the prohibited name.

Starting again as a sole trader or partnership therefore does not automatically avoid the restriction.

Potentially, yes.

There are statutory exceptions and there is also a procedure for applying to the court for permission.

For a company wound up in Scotland, the relevant exceptions and court procedure are contained in Part 12 of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018.

The circumstances can include:

• Acquiring the whole or substantially the whole of the old company’s business under qualifying arrangements with the insolvency office-holder and giving the required notices
• Applying to the court for permission to use the prohibited name
• Continuing to be involved in another qualifying company that has already traded continuously using that name for the required period before the liquidation

The conditions are technical and timing can be critical. Do not assume that buying the company name, website or a few assets is enough to satisfy an exception.

If you intend to continue under the same or a similar name, take advice before you start using it.

The consequences can be serious.

A breach can potentially result in:

• Criminal prosecution
• A fine or imprisonment on conviction
• Director disqualification
• Personal liability for debts incurred by the new company while you were involved in the prohibited-name breach

This last consequence is particularly important.

A director who correctly uses a new limited company would ordinarily expect the company to be responsible for its own debts. A prohibited-name breach can remove that protection for relevant debts and expose the director personally.

It is therefore not an area where directors should rely on simply making a small alteration to the old company name.

Potentially, yes.

A new company may be able to acquire assets from the insolvent company through the liquidator.

Assets might include:

• Plant and machinery
• Vehicles
• Stock
• Office equipment
• Websites or domain names
• Intellectual property
• Goodwill
• Other business assets

The important point is that these assets belong to the old company, not automatically to its directors or shareholders.

If the new company wants to use them, the assets should be properly transferred or purchased.

Even where an asset appears to have little value to anybody else, it should not simply be taken into the new business without discussing the position with the liquidator.