Litigation – starting up after solvency and when to call in the experts

A director of a failed company can become a director of a new company unless he is subject to a disqualification order or in certain circumstances where he is personally adjudged bankrupt. A disqualified person or such a bankrupt may obtain leave of the court to be a director. 

There are restrictions on the further use of a failed company's name or trading name. Where a company has gone into insolvent liquidation, persons who were directors or shadow directors within the previous 12 months prior to liquidation are, subject to certain exemptions, generally prohibited from being a director or otherwise being involved in the business of a company with the same or similar name as the liquidated company for a period of five years from the liquidation.

A person who acts in contravention of this prohibition is liable to imprisonment or a fine (section 216 (4), IA 1986) and may incur personal liability for the company's debts incurred while using the prohibited name. If a company has more than one trading name, including one that is prohibited by section 217 of the IA 1986, the director is only liable for the debts incurred by that part of the company’s business that trades under the prohibited name. 

The next question at this stage for many will be, when to call in the experts. This is a highly specialised area of practice and this article can only serve as a general overview of this complex area of law. Expert advice should be sought from an insolvency practitioner in the event of a company facing insolvency. A key message to get across to directors is to seek expert advice earlier, rather than later, at a point when the business may still be rescued or alternatively to ascertain the personal implications for you as a director of an insolvent company before the business becomes insolvent.