S216(3) of the Insolvency Act 1986 restricts former directors of insolvent companies from being involved with companies or businesses using a prohibited name for five years following an insolvent liquidation.
S216(3) provides that, unless leave is granted by the court or one of the statutory exceptions applies, a person who was a director of a company at any time in the 12 months before it entered insolvent liquidation must not, for five years from the date of liquidation, be a director of a company that is known by a “prohibited name”, be concerned in or take part in the formation, promotion or management of a company or carry on a business under the “prohibited name”. A prohibited name is the name that the liquidated company was known as within 12 months prior to its liquidation, or a name so similar that it suggests an association with the liquidated company. The restriction does not apply where the court grants leave under section 216(3), or if one of the exceptions contained in Rule 22.4, 22.6 or 22.7 of the Insolvency Rules 2016 applies. Breach of section 216 can result in criminal sanctions, and may also expose the individual to personal liability for the debts incurred by the company while acting in contravention of the section.
One of the statutory exceptions is contained in Rule 22.7. This permits the use of a prohibited name where the company using the name (or a name suggesting an association with the liquidated company) had been known by that name throughout the 12 months ending on the day before the liquidated company entered into liquidation, and had not been dormant during that 12-month period.
The recent decision in English v Secretary of State for Business and Trade [2026] WLR(D) 365, [2026] EWHC 1711 (Admin) considered the scope of this exception. The appellant was a director of Insignia Blind Co Ltd, which entered insolvent liquidation in January 2020. Prior to incorporating the company in 2000, he had also operated as a sole trader, using the trading name “Insignia Shade and Shutter Company”, and continued to trade under that and similar names following the liquidation. The business name and logo belonged to the appellant personally. Despite warnings from the Insolvency Service that his continued use of those names breached section 216, he continued trading and was subsequently prosecuted and convicted. He was disqualified from being a director for three years and sentenced to a conditional discharge.
The appellant appealed to the High Court on the basis that the exemption in Rule 22.7 should be interpreted as extending to an unincorporated business such that it could be read as applying to “the company or business”. The High Court dismissed the appeal, holding that the rule should not be read this way finding that “there is no legitimate basis” for the court to rewrite “the company there referred to” to mean “the company or business there referred to” – this would amount to judicial rulemaking.
What does this mean in practice?
English confirms that the exception in Rule 22.7 is available only where a company has itself been using the relevant name for the required period and has not been dormant during that time. A sole trader or other unincorporated business cannot rely upon Rule 22.7 merely because it has been trading under the relevant name.
Accordingly, directors seeking to continue using a prohibited name should carefully consider whether one of the statutory exceptions genuinely applies. Where no exception is available, an application for leave under section 216 should be considered in order to avoid the potentially serious criminal and civil consequences of a breach.
