Breach of section 216 from a liquidated company

Section 216 restricts directors where companies have gone into insolvent liquidation from being directors of companies using the same or similar name of the liquidated company.

I personally cannot see how Skillstrak could be mistaken for Salespush.

From the outset my comments should be taken purely on the information available publicly (i.e. at Companies House) and that which has been set out in Mark’s comments, therefore I do have some points to clarify and so this post is not definitive.

The history would appear that Skillstrak changed its name from Salestrak on 21 June 2008. However Salespush was incorporated at an earlier date of 14 May 2008. Therefore within the 12 months prior to liquidation both companies had a similar name. I have no information as to whether both companies used for example the same or similar trading name, website, literature or public presence as to cause the general public confusion in differentiating the current trading company from the insolvent company. I have no information as to whether Salespush quoted as a “supplier of CRM software” if this traded in a similar business sector to the liquidated company. Additionally I have no information as to whether Salespush continued on the business either in part or in full of the liquidated company.

Section 216 was introduced to halt the ‘phoenix’ culture which existed before the 1986 Insolvency Act, whereby a new company would carry on business of the liquidated company often using the same or similar name with the same directors or shadow directors (i.e. not formal directors but people effectively managing the business).

As a licensed insolvency practitioners firm we as a routine inform directors immediately following liquidation of the restrictions and I therefore quote from the letter we send, this explains the law:

“Your attention is drawn to the provisions of Section 216 and 217 of the Insolvency Act 1986 which are briefly explained below.

As you were a director of xxxxx Limited at any time in the period of 12 months ending with the day before the company went into liquidation you are prohibited from using any name by which xxxxx Limited was known, including any trading names, or a name which is so similar as to suggest an association with that company.

The restriction from using a prohibited name applies for the period of 5 years beginning with the day on which xxxxx Limited went into liquidation and except with the permission of the court you cannot:

a)       be a director of any other company that is known be a prohibited name, or,

b)      be in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or,

c)       be in any way, whether directly or indirectly, be concerned or take part in the carrying on of an unincorporated business under a prohibited name.

Your attention is also drawn to Rules 4.226 to 4.230 of the Insolvency Rules 1986 which provides three exceptions to the restriction imposed by Section 216 of the Insolvency Act 1986.

You should note that it is a criminal offence to contravene Section 216 of the Insolvency Act 1986 and if you act in contravention of this section you are liable on conviction to imprisonment and/ or a fine.

Your attention is also drawn to Section 217 of the Insolvency Act 1986, which provides, amongst other things, that a person who is involved in the management of a company in contravention of Section 216 of the Insolvency Act 1986 is personally liable for any debts of the company incurred during the period of that involvement.

A copy of Sections 216 and 217 of the Insolvency Act 1986 is attached together with a copy of Rules 4.226 to 4.230 of the Insolvency Rules 1986.”

It is therefore possible that the liquidation creditor is seeking to prove that Section 216 applies and then invoke personal liability on any post-liquidation director of Salespush.

If the creditor pursues matters, my advice every time is collect all the evidence you have as to what happened and when for both companies. To gain a full picture of what occurred (from both sides), if some events happened and there is no physical evidence, write down the dates and time and what things occurred. Only once you have assembled all this information then, I recommend you go to see or send it to a solicitor with specific experience of insolvency law. Such a solicitor will give you an opinion.

In a worst case scenario, and which I think it is sometimes best to be straightforward and tell it warts and all, any director liable under section 217, I suggest should  take personal insolvency advice, which Bottomley & Co offer a free initial consultation. We also offer this consultation service to companies as well.

Section 216 applies to anyone who was a director (or shadow director) of the liquidated company within the 12 months prior to its liquidation in relation to any name which the company was known by during that time. Companies House shows that the company was liquidated on 17 April 2009. The prohibition applies to any name which the company was known by, whether that be its registered name or a trading name.

During the 12 months prior to the liquidation the company was called Salestrak Limited, changing its name to Skillstrak Limited on 21 June 2008. You are therefore prohibited from using either of those names, or any other name which is 'so similar as to suggest an association'.

There are exceptions to the rule, as Paul has pointed out, but from the information in the opening post I do not think any of them apply.

So we've established that Section 216 applies to the name Salestrak. The question then is have you breached S216 by being a director of Salespush Limited? Clearly the names are similar, but there are other factors to consider. Did Salespush trade from the same premises? use the same staff? have the same or similar logo, stationery, website etc? did it use the same telephone / fax numbers and email addressess? The date that Salespush commenced trading is also a factor.

Unfortuantely the law is rarely black and white, and ultimately this could come down to the courts interpretation of whether or not 'Salespush' is considered similar to 'Salestrak'. That will depend on the answers to the questions posed above: if the answers are predominantly 'yes' then I think it is likely that the courts would consider the name similar and that you have breached S216.

The next question then is what does this actually mean? Well if S216 is breached then S217 applies. S217 has the effect of making you personally liable for any debts of the 'phoenix' company (Salespush) incurred whilst you acted as a director of that company. It does not make you personally liable for any of the debts of Skillstrak, so even if S216 has been breached, you have no liabililty to the creditor of Skillstrak who has written to you.

Breach of S216 also renders you liable to a fine or imprisonment, or both. My understanding is that the Secretary of State would need to prosecute you for this offence. I do not think a creditor has the ability to bring a criminal prosecution, although you should get your solicitor to clarify this.

From the limited information provided it seems to me that the creditor concerned is trying to frighten you in to settling the debt, but I cannot see how you could have any personal liability. Nevertheless I think you should do as Paul suggested and gather all the information together and consult a solicitor with insolvency experience.