Question around IP and insolvency

[ECSWalker]

This is more curiosity than anything else. I acquired a company almost 3 years ago under a seller finance deal, with me putting the company into liquidation a few months later. Due diligence wasn't great and a few harsh lessons have been learnt along the way.

Part of the deal was that my SPV bought the IP (inc name, customer list, etc) for cash from the company. Would I be entitled to use the trading name of the company if it's now in liquidation? I obviously don't want to get into a situation where I use a trading name and get in trouble for it.

Cheers

 

[Frank Wessely]

This is more curiosity than anything else. I acquired a company almost 3 years ago under a seller finance deal, with me putting the company into liquidation a few months later. Due diligence wasn't great and a few harsh lessons have been learnt along the way.

Part of the deal was that my SPV bought the IP (inc name, customer list, etc) for cash from the company. Would I be entitled to use the trading name of the company if it's now in liquidation? I obviously don't want to get into a situation where I use a trading name and get in trouble for it.

Cheers

Hi @ECSWalker

I assume that "liquidation" means an insolvent liquidation in this case and my answer below is on that basis. If it wasn't insolvent then do say.

Technically the company name and its trading name (if different) became restricted names for you as a director of the company upon its winding up. S216 / S217 of the Insolvency Act 1986 sets this out in more detail here.

Given the length of time which has since elapsed, the only route open to you now to become the director of another company which uses the old trading name is for the new company to acquire the trading name from the Liquidator, for you to then send a statement to the creditors of the old company which advises them that you intend to become the director of a company which will be known by that trading name. Also you will have to publish that statement in the London Gazette (essentially a classified advertisement). Only then should you become a director of the new company.

The chances are though that the old liquidation case has been closed now and the former company no longer exists.

You could have otherwise applied to Court for sanction to act but it is too late for that.

Using the old trading name without sanction would be a criminal offence and could leave you open to certain personal liabilities for debts of the new business.

An alternative for you is to have someone else acting as director of said new company and for you to simply be an employee, making sure though that you would not be acting as a shadow director.

Or you wait for 5 years to pass since the liquidation of the old company and then the restriction upon you falls away.

Hope this helps.

Thanks.

 

[ECSWalker]

Thanks, Frank. Appreciate your input.

Ironically, the company is still in liquidation. The previous owner has been under investigation since day one and the last report from the liquidator stated that their investigation was ongoing.

??

 

[Gyumri]

I agree with what @Frank Wessely says because that's the law as it applies to former directors, but it's not clear that the OP falls into that category if the deal was simply that his SPV bought the company's assets.

If he was never a director then he can carry on and use the name which his SPV bought.

 

[ECSWalker]

I agree with what @Frank Wessely says because that's the law as it applies to former directors, but it's not clear that the OP falls into that category if the deal was simply that his SPV bought the company's assets.

If he was never a director then he can carry on and use the name which his SPV bought.

The liquidator advised me to become a director so that I could start the liquidation process. About two months later I resigned as director.

The SPV bought the shares of the company.

It would appear I need to cut my losses and accept that I cannot use the trading name.

 

[WaveJumper]

Question is why would you want to be associated with it ....... it failed

 

[ECSWalker]

In all honesty, it's a real shame. The original owners did a fantastic job and sold the company in 2018. The then new owner was a little creative shall we say. When I acquired the business we realised the goodwill of the suppliers had been completely exhausted. Fabricated figures, etc. Hence the reason he's under investigation still.

We took on most of the staff of the acquired company in another of our companies and managed to retain a fair amount of the domestic work. What's a shame is that the trading name is very well respected with the customers. They still bring it up now, and all we can say is that we employ many of the staff from that company.

 

[Frank Wessely]

The liquidator advised me to become a director so that I could start the liquidation process. About two months later I resigned as director.

The SPV bought the shares of the company.

It would appear I need to cut my losses and accept that I cannot use the trading name.

Hi @ECSWalker

It is a pity that the Liquidator did not tell you about the restriction around the company name which would arise following your appointment as director. The fact that you subsequently resigned unfortunately makes no difference.

It is interesting / unusual that customers still mention the name 3 years after the liquidation. There must have been very strong brand loyalty. Is it not worth a second thought as to how the purchase of the trading name could be facilitated, if only to safeguard it for the future?

Thanks.

 

[Gyumri]

Is it not worth a second thought as to how the purchase of the trading name could be facilitated, if only to safeguard it for the future?

I think the OP's SPV has already purchased the trading name but is unable to use it for the reasons you have given.

I think section 216(3) may be the solution and the court would give permission for the OP to use the name.

A simple application costing £255 supported by suitable evidence should persuade a judge that the OP can be entitled to use the name.

 

[Frank Wessely]

I think the OP's SPV has already purchased the trading name but is unable to use it for the reasons you have given.

I think section 216(3) may be the solution and the court would give permission for the OP to use the name.

A simple application costing £255 supported by suitable evidence should persuade a judge that the OP can be entitled to use the name.

I believe that the SPV purchased the shares not the trading name.

The option to apply to Court only has a window of 7 business days following the Liquidator's appointment. The OP would have to persuade the Court that there are very extenuating circumstances which can explain an application being made 3 years later.

Thanks.

 

[Gyumri]

I believe that the SPV purchased the shares not the trading name.

Part of the deal was that my SPV bought the IP (inc name, customer list, etc) for cash from the company. Would I be entitled to use the trading name of the company if it's now in liquidation?

Where does the statute say 7 days?
And I wonder how directors buying a company from an administrator can get away with carrying on as usual by using the company name. Seems rather unfair!

 

[Frank Wessely]

Where does the statute say 7 days?
And I wonder how directors buying a company from an administrator can get away with carrying on as usual by using the company name. Seems rather unfair!

The detail behind the Insolvency Act 1986 is largely contained in The Insolvency (England & Wales) Rules 2016. As I say above, the Rules state 7 business days here. Part 22.6 (1).

Typically, sales by Administrators comprise the operating business and assets, not the company itself which would be insolvent. The sale would include goodwill and other intangibles, such as the brands and trading names. In these circumstances, if a director of the insolvent vendor company intended to join the Board of the purchasing business then the director must avail themselves of one of the 3 workarounds as provided for in the Rules, to avoid being caught by the restrictions on the reuse of the company name / trading names.

As for the purchase of shares, the OP confirmed this in the post timed at 07.34 today.

Thanks.

 

[Gyumri]

We learn something every day. Thanks for taking the time to clarify the position.

Could the OP not take advantage of this section which seems quite feasible and relatively cheap? :

(2) The person will not be taken to have contravened section 216 if prior to that person acting in the circumstances set out in paragraph (1) a notice is, in accordance with the requirements of paragraph (3),—

(a)given by the person, to every creditor of the insolvent company whose name and address—

(i)is known by that person, or

(ii)is ascertainable by that person on the making of such enquiries as are reasonable in the circumstances; and

(b)published in the Gazette.

 

[Frank Wessely]

We learn something every day. Thanks for taking the time to clarify the position.

Could the OP not take advantage of this section which seems quite feasible and relatively cheap? :

(2) The person will not be taken to have contravened section 216 if prior to that person acting in the circumstances set out in paragraph (1) a notice is, in accordance with the requirements of paragraph (3),—

(a)given by the person, to every creditor of the insolvent company whose name and address—

(i)is known by that person, or

(ii)is ascertainable by that person on the making of such enquiries as are reasonable in the circumstances; and

(b)published in the Gazette.

Yes indeed he could (carefully) do that; as per my post of 6.04 p.m. on Wednesday.

Thanks.