Starting A New Company After Liquidation

Starting a limited company after a company voluntary liquidationStarting a new company following liquidation can be a difficult but rewarding endeavor. After shutting down a business, it’s important to have a sound strategy for launching a new one.

This means taking stock of resources, identifying the right target market and creating an achievable plan. By taking careful and calculated steps to set up a viable business model, entrepreneurs can increase their odds of success in launching their next venture.

It requires dedication and resource management but is possible with the right dedication and focus. Those looking to start anew should reach out to trusted advisors, financial or otherwise, who will help create both long-term sustainability and rapid growth for their new company.

This article will outline the process for forming a new limited company as a director, if your previous business entered into liquidation or any type of insolvency process.

The Registrar can ban someone from being a director in certain cases, including if the individual has been a director of quite a few companies that have gone through liquidation, or acted in an immoral or irresponsible way.  Most individuals whose businesses become insolvent do not do so maliciously and will learn from their mistakes, and can run another business more successfully.

Can I start a new company after liquidation?

Once a liquidated has taken place you can start a new company, in some cases, directors purchase some or all of the old business assets through the liquidator. There are a number of rules you must follow to ensure you keep within the law though.

If you have been the director of a liquidated company and you set up a new company it cannot have the same or a similar name to the old company, to reduce any confusion for creditors of the old company.

This is called passing off (under section 216 Insolvency Act 1986). It can lead to criminal action against the director or being held liable for all of the debts of the new company should it too go into liquidation. So the best advice is get the professional advice.

It is possible to buy the name through administration, or the liquidator can agree to sell the name and a court application can support this. However, any court application will need to show why the rules of section 216 should not apply to you. Not always easy. It should be borne in mind that if you were to buy the business you will need to pay a fair price and this will have been valued by a chartered surveyor or asset valuer.

The other problem of setting up a new company with a similar name is that it can result in bad feelings between creditors and the company as people believe that the directors are being disingenious by using the same or similar name even if it is all done by leave of the court.

Considerations when liquidating a company and starting again

Starting a new business venture can be exciting but there are many challenges to consider, especially where a previous company has been liquidated. When starting again, the name of the previous company cannot be reused and a security deposit may need to be provided to the HMRC if tax debts were outstanding when the old company was dissolved.

It’s important to understand all the terms and conditions before taking on such commitments in order to ensure that the new venture is successful. Furthermore, preparation for potential risks should also be carried out in advance of launching any project, no matter how small.

Read more: How to set up a limited company

Reusing company names

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.

Buying the assets of your old company

If you are considering purchasing the assets of a company which has gone into insolvency or liquidation, then it is important to seek professional advice from qualified insolvency practitioners. They can provide advice on the specific insolvency procedure and regulations, so that you receive full value for your purchase.

It is also recommended that you consider using trained insolvency professionals to conduct detailed due diligence when considering whether to buy the insolvent company’s assets, including inspecting and evaluating all tangible assets involved in the transaction. By doing so, it will help ensure that you make an informed decision as to whether such a purchase would be beneficial in light of any potential liabilities incurred by the insolvent business.

Read more: Starting a business if you are in an IVA

HMRC security deposit

HMRC recognise that starting a new business can be a challenging venture, and they want to ensure they are properly compensated in case a previous accumulation of taxes owed is never paid. As such, HMRC may require a security deposit from any entrepreneurs attempting to start anew after their old business had tax debts.

This ensures HMRC’s perceived risk of suffering further losses as creditors is effectively mitigated, protecting both HMRC and the new business owner.

Need advice post liquidation

If you are worried about starting a new company after liquidation, and need clarity, simply complete the online enquiry form and one of the post liquidation team that deals with new start company formations will help guide you.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.