Can You Liquidate A Company & Start Again?
If your company is facing liquidation and you’re concerned about what the future may look like post-liquidation, the following aims to clarify some of the queries you may have. In particular, one of the biggest concerns you’re likely to have for the future is, ‘can you liquidate a company and start again?’.
In answer to the question ‘can you liquidate a company and start again?’, the good news is yes, you certainly can start again, although with certain restrictions in mind. Generally, you can be the director of as many companies as you like, however, if you’re looking to start a new company following liquidation, there are strict legal requirements that must be adhered to.
Upholding your duties as a director as the company enters liquidation is important in ensuring that you will be able to become the director of another company in the future. If your company is insolvent and a company rescue procedure is not feasible, the best option is a Creditors’ Voluntary Liquidation (CVL) and if the company is solvent you should consider a Member’s Voluntary Liquidation (MVL). You can read more about the liquidation options available to your business in our previous blog, and of course, get in touch with our team who will be able to answer any queries you may have.
Ensuring you uphold your duties as a director during liquidation is an important part of the question ‘can you liquidate a company and start again?’ because personal liabilities can create a problem. Once the decision is made to place a company into voluntary liquidation, the conduct of the director will be investigated by a licensed insolvency practitioner. If there is evidence of wrongful doing, such as wrongful trading, under the Company Directors Disqualification Act 1986, directors can be prevented from being involved in the management, promotion or formation of another company for up to 15 years.
This is why we encourage those asking ‘can you liquidate a company and start again?’ to seek professional advice as early on in the liquidation process as possible. If you have liquidated your company correctly you will be able to start a new company, bearing in mind the following restrictions:
Reusing A Company Name
When you liquidate your company and start a new one there are legal restrictions in place for using the same or a similar name to the old company. This is to prevent directors from establishing a new company in order to escape previous debts and difficulties. Under Section 216 of the Insolvency Act 1986, it is illegal for the company director of a liquidated company to be involved with another company of the same/ similar name for up to 5 years after liquidation. There are however a few exceptions to this rule:
Purchase of business: If the new company purchases the whole or substantial amount of the liquidated company’s business or assets, a similar name can be used providing all stakeholders are notified.
Court permission: A court application is made requesting the reuse of a similar name for the new company
Existing use: If the ‘prohibited name’ has already been in use by a company that has been trading for at least 12 months leading up to the day of the liquidation
HMRC Security Deposit
Another factor to be taken into account when discussing the question ‘can you liquidate a company and start again?’, is taxes. If your old company had tax debts, HMRC may require a security deposit, such as a bond, to address their perceived risk of loss as a creditor to your new business. This means that if the new company is unable to pay its taxes to HMRC then they can settle them using the security deposit.
Transfer Of Assets
When a new company emerges using the assets of a liquidated company they are known as a ‘phoenix’ company. When purchasing assets from the old company it is crucial that they’re bought at a fair price, and so it’s important that you obtain an independent and professional valuation.
Limited Credit Accounts
In answer to the question ‘can you liquidate a company and start again?’, it’s also important to note challenges that may be faced when building future creditor relationships. As a result of poor credit history with the liquidated company, credit accounts for the new company are likely to involve extra security measures such as tighter terms or payment in advance.
What Happens To Employees When A Company Goes Into Liquidation?
If employees are transferred from the old company to a new one following a compulsory liquidation or CVL, then the Transfer Of Undertakings (Protection of Employment) “TUPE” is not usually applicable. As a result, contract terms, working hours, and other benefits can be changed without this being classed as unfair.
So in response to the question of ‘can you liquidate a company and start again?’, our answer is yes, absolutely, so long as the legal restrictions are adhered to.
If you are looking to liquidate your company or start a new one following a liquidation, please don’t hesitate to seek confidential, professional advice with MyLiquidation today.
