Insolvency Rules 1986 4.228 (1)

I have to agree with you,  and although it is common practice to do otherwise it doesn't make it right. As I understand it, the directors of the liquidated company cannot act as directors of another company with a similar name until after the notice has been sent. As they have already acted in breach of S216, the notice now would be deficient. Alternatively newco could be incorporated with the similar name, providing that the oldco directors do not become directors of newco until after the notice has been given. However I don't think these rules (which were introduced after the Churchill case) have been tested before the courts yet, so we don't know how the courts will interpret them.

Practically I know that the scenario you describe is commonplace, largely because the law is inadequate for the real world. Because of the statutory notice period for calling creditors meetings, companies usually cease to trade 2-3 weeks before the liquidator is appointed. The directors usually want the new company to commence trading immediately so that there is no break in trade, but cannot satisfy the conditions of the Rules until the liquidator is in office. What they should have done is have newco formed by someone else to start with and complete the transaction with the liquidator, then send the notices and then become directors. The original founders of newco can then resign.

I think in many cases such as your scenario, the notices are sent merely to 'muddy the waters', and to give the directors an arguable defence in the (relatively unlikley?) event that are pursued for breaching S216. It might also be argued that they are personally liable under S217 for the debts of newco until the notice is given, but that they should not be personally liable for debts arising after the notice was given, even though they had acted in breach earlier. I'm not sure how strong an argument this would be (although it seems reasonable enough to me - but I'm not a solicitor), and until we get some case law on it we won't know how the courts will interpret it.

In your scenario I think the safest option is for the directors to make an application to the Court, as the notice alone does not fully comply. Alternatively they could of course simply change the name of newco which would avoid the problem altogether.

The insolvency legal advice I have is that the director of the new co must apply to Court within 7 days of the liquidation (that is the creditors meeting date) for permission from the Court to use the prohbited name.

If the director does not follow the correct procedures and he or she is in breach of Section 216 Insolvency Act the penalties are a possible fine or even a prison term!

If a breach of s.216 occurs and the 'new co' then becomes insolvent the business community in my experience are unaware that the directors can be personally liable for 'new co's' liabilities.

Insolvency Practitioners often advise creditors, but will need to know some of the history of old and new co in order to come to an assessment of the situation.