When a company is liquidated, all its assets are sold and the company removed from the official register. Any debts that remain at the end of an insolvent liquidation process are written off, as the business is unable to generate more funds for creditors in its financially depleted state.
Although it’s against the UK insolvency laws for directors to continue trading when a company is insolvent, once it’s liquidated it may be possible to start again with a new venture.
Companies fail for a variety of reasons and it’s not always possible for directors to influence the outcome. Sometimes market forces result in business failure, or other factors outside directors’ control.
An important point to consider when starting again following liquidation is the use of a liquidated company’s name, or one that is similar, as this could be used maliciously by rogue directors intending to mislead the public and former creditors.
Insolvency laws state that directors involved in a company during the 12 months prior to its liquidation cannot for five years:
In some cases, directors purchase some or all of the old business’ assets through the liquidator, so this may be an option if you want to start again after liquidating. It’s also worth knowing that the restrictions on using company names are stringent.
If you start again with a new company you need to be very careful not to use the same or a similar company name. Section 216 of the Insolvency Act, 1986, lays down the rules surrounding the reuse of company names, but there are three exceptions to these rules:
1. Purchasing business assets from the liquidator
When you purchase the whole of the business, or substantially the whole, you may be able to use the same or a similar name to the liquidated company. Where assets are purchased from the liquidator, you would need to inform creditors of your intention to run a new company with the same or similar name, and also publicly advertise the fact in the Gazette.
2. Applying to court
You can apply to the court for permission to reuse the company name. This is called applying for court leave, and the application must be lodged with court no more than seven days following the liquidation of the old company. The court can grant ‘leave’ no more than six weeks from the application date.
3. Existing use of name
If the company was already known by this name during the 12 months before liquidation and it hasn’t been a dormant company during this 12 month period.
Although it’s possible to start again after liquidating your old company, there are several issues to consider. Apart from the restrictions on reusing company names you may need to provide a security deposit for HMRC when you start up, if the old company owed tax debts.
There may also be problems in securing new lines of credit - it’s possible that suppliers will only be willing to trade with the new company on a cash-on-delivery basis, for example, given the liquidation of the old company.
When a company is liquidated, the directors sometimes purchase their business assets via the liquidator with a view to setting up a new company. It’s crucial to ensure you pay a fair price for the assets, and this can be done by obtaining an independent professional valuation.
When a new company emerges using the assets of a liquidated business it’s known as a ‘phoenix’ company, and HMRC may require additional safeguards if they’ve been unable to recover tax debts. One of these could be a down payment on tax called an HMRC security bond.
If your old company had tax debts, HMRC may demand a security deposit when you set up a new company. This addresses their perceived risk of suffering further losses as a creditor of your new business.
Clearly, there’s much to consider when starting again after liquidating a company, but UK Liquidators are here to help. We’re liquidation specialists working from offices around the country, and can offer you a free same-day consultation.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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