The Insolvency (Amendment) Rules 2007

EXPLANATORY NOTE

(This note is not part of the Order)

These Rules amend the Insolvency Rules 1986 (“The Rules”) by substituting a new version of Rule 4.228. Section 216 of the Insolvency Act 1986 (“The Act”) prohibits a person who was a director (or shadow director) of a company within 12 months of its entering into insolvent liquidation from being a director of another company which has the same name or a name which is so similar as to suggest an association with the insolvent company (such a name is referred to as “a prohibited name”). Section 216 of The Act also contains prohibitions against such a director acting in connection with the promotion, formation or management of a company known by a prohibited name or carrying on a business under a prohibited name otherwise than by a company.

The prohibitions in section 216 are subject to leave being granted by the court and to such exceptions as may be prescribed by Rules made under section 411. The Rules contain a number of exceptions to the section 216 prohibition that are contained in Rules 4.226 to 4.230. The former version of Rule 4.228 allowed a director to act as the director of a company or otherwise in connection with its management where—

(a) the company used a prohibited name; and

(b) the company acquired the whole or substantially the whole of the insolvent company’s business; and

(c) a notice was given to the insolvent company’s creditors.

In First Independent Factors and Finance Limited v Churchill [2006] EWCA Civ 1623 the Court of Appeal ruled that such a notice could not be given where an individual was already a director of the successor company that wished to acquire the business of the insolvent company and adopt the prohibited name.

The new Rule 4.228 makes provision for a director of a company that enters insolvent liquidation to act as a director of a company (or otherwise be involved in the formation promotion or management of that company) where that company—

(a) uses a prohibited name; and

(b) acquires the whole or substantially the whole of the insolvent company’s business.

Notice must be published in the Gazette and given to all creditors known to the director or whose names and addresses could be ascertained by the director by making reasonable enquiries. The Rule further allows a person to carry on the business of the insolvent company using a prohibited other than through a limited company where the relevant notice is given. The Rule provides that the prescribed notice may be given before the company enters insolvent liquidation (where, for example, the insolvent company is in administration and it is likely (or possible) that it will subsequently go into insolvent liquidation). In cases where the insolvent company is not in insolvent liquidation and also in cases where the acquiring company has not yet adopted a prohibited name, notice can be given where the director of the insolvent company is already a director of the acquiring company. However notice must always be given before a director acts in a way that would be prohibited by section 216.

No Regulatory Impact Assessment has been prepared in relation to these Rules, as they will not impose any significant burdens on business.