Starting a New Company After Liquidation: Is It Possible?

March 6, 2023 / Business Insolvency

Although many directors know that liquidation is an option to end their companies, solvent or otherwise, the future effects could be clearer. Some directors question whether it is possible to start a new company after liquidation, adding more uncertainty to an already challenging process.

In this article, Clarke Bell will answer this question, providing you with a complete guide to starting a new company after liquidation, and what you need to know beforehand.

Is starting a new company after liquidation legal?

While the short answer to this question is yes, it is quite conditional. There are a few rules that govern starting a new company after liquidation, and falling afoul of these rules will land you in serious legal hot water. However, assuming you abide by these rules, there is no limit to how many new companies you can start after liquidating one or more.

There is one major exception to this, however. If you have had your directors’ license suspended due to the Company Directors Disqualification Act 1986, you will not be able to start a new company after liquidation. This applies even if you otherwise follow the rules governing starting a new company after liquidation, and will continue to apply for the duration of your disqualification.

Also Read: Can a Company Liquidation Be Reversed?

What are the rules for starting a new company after liquidation?

Two rules govern starting a new company after liquidation. First, your new company must not have the same or similar name as the previous company. This rule is in place for five years after liquidating the previous company. Second, directors cannot create a new company with a name that can be related to the previous company by members of the public. This means that, if you plan on starting a new company after liquidation, it must be a completely new endeavour as far as name and branding go. This is to prevent new companies from riding on the successes of a previous company that was liquidated.

While these rules can be fairly limiting if you want to start a similar company to your previous venture, it doesn’t mean it’s impossible. By using a pre-pack administration, you can sell the assets of the old company to a new one, leaving it behind and continuing similarly with the new company. However, it is vital that you use a licensed insolvency practitioner for this procedure, as there are many rules and regulations to navigate. Failing to do so correctly can result in severe consequences for you and your company.

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Can I reuse the name of an old company?

In most cases, reusing your old company’s name when starting a new company after liquidation is impossible. This rule exists to stop underhanded directors from liquidating an old company to escape debt, then using its name with a new company to carry on with the same level of recognition. This practice is known as “phoenixing”, and is illegal under UK law.

Although in most cases, you will not be able to reuse the name of an old company, there are exceptions. First and foremost, you may petition the courts to allow you to reuse an old company name. This must be done within seven days of the liquidation of an old company, and must include details of your particular situation. If you intend to go down this route, you can ask your insolvency practitioner for help. They will guide you through the process of making such an application, and you can expect a response within six weeks.

Starting a new company after liquidation – what to keep in mind

When you move to start another company after liquidation, there are a few key points that you should keep in mind. These points may apply to you in your situation, and could influence your decision to place your current company into voluntary liquidation.

Personal guarantees are not affected by liquidation

One of the key benefits of voluntarily liquidating an insolvent company is that the remaining debts are written off if the company cannot raise enough money through liquidation. However, this does not extend to personal guarantees. If the signing of a personal guarantee has secured any loans, you will need to keep this promise by dipping into your personal finances. This is true even if you start a new company after liquidation, and it must be paid in a timely manner to avoid legal action.

You may need to pay a security bond

If your old company owed a significant debt to HMRC, you might be required to pay a security bond before starting a new company. A security bond is essentially a legal agreement declaring your ability to repay a debt, such as tax obligations to HMRC, and is backed by company assets. This bond is used to protect HMRC from certain risks, such as a debtor defaulting, and may be required from you if your previous company was insolvent. Refusing to pay a security bond can result in significant financial consequences, such as a fine of £5,000.

Using a pre-pack administration

If you intend to use a pre-pack administration to transfer assets from the old company to your new one, it is vital that you purchase the assets at fair market value. As mentioned earlier, this is to prevent phoenixing, a practice that can bring serious legal consequences to directors that engage in it.

When placing a company into a pre-pack administration, you should bring in an independent professional valuer to appraise every asset you intend to buy. This ensures that these assets will be bought at fair market value, and will protect you from any allegations of attempting to phoenix. You will also need a licensed insolvency practitioner on board, as they must examine the appraisals of the independent valuer. Assuming you do so, a pre-pack administration is a perfectly legal option for starting a new company.

Clarke Bell can help

If you plan on liquidating your company, no matter the reason, let Clarke Bell be there to help. We have more than 28 years of experience in helping companies find the best solution for their situation, and we can do the same for you. Don’t hesitate to contact us today for a free, no-obligation consultation, and find out exactly how we can help you.