“15.55 The “phoenix” problem results from the continuance of the activities of a failed company by those responsible for the failure, using the vehicle of a new company. The new company, often trading under the same or a similar name, uses the old company’s assets, often acquired at an undervalue, and exploits its goodwill and business opportunities. Meanwhile, the creditors of the old company are left to prove their debts against a valueless shell and the management conceal their previous failure from the public.”
“4.227 Application for leave under section 216(3) When considering an application for leave under section 216, the court may call on the liquidator, or any former liquidator, of the liquidating company for a report of the circumstances in which that company became insolvent, and the extent (if any) of the applicant’s apparent responsibility for its doing so. When considering an application for leave under section 216, the court may call on the liquidator, or any former liquidator, of the liquidating company for a report of the circumstances in which that company became insolvent, and the extent (if any) of the applicant’s apparent responsibility for its doing so. 4.228 First excepted case (1) Where a company (“the successor company”) acquires the whole, or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement under Part I of the Act, the successor company may for the purposes of section 216 give notice under this Rule to the insolvent company’s creditors. (2) To be effective, the notice must be given within 28 days from the completion of the arrangements, to all creditors of the insolvent company of whose addresses the successor company is aware in that period; and it must specify— (a) the name and registered number of the insolvent company and the circumstances in which its business has been acquired by the successor company. (b) the name which the successor company has assumed, or proposes to assume for the purpose of carrying on the business, if that name is or will be a prohibited name under section 216, and (c) any change of name which it has made, or proposes to make, for that purpose under section 28 of the Companies Act. (3) The notice may name a person to whom section 216 may apply as having been a director or shadow director of the insolvent company, and give particulars as to the nature and duration of that directorship, with a view to his being a director of the successor company or being otherwise associated with its management. (4) If the successor company has effectively given notice under this Rule to the insolvent company’s creditors, a person who is so named in the notice may act in relation to the successor company in any of the ways mentioned in section 216(3), notwithstanding that he has not the leave of the court under that section. 4.229 Second excepted case (1) Where a person to whom section 216 applies as having been a director or shadow director of the liquidating company applies for leave of the court under that section not later than 7 days from the date on which the company went into liquidation, he may, during the period specified in paragraph (2) below, act in any of the ways mentioned in section 216(3), notwithstanding that he has not the leave of the court under that section. (2) The period referred to in paragraph (1) begins with the day on which the company goes into liquidation and ends either on the day falling six weeks after that date or on the day on which the court disposes of the application for leave under section 216, whichever of those days occurs first. 4.230 Third excepted case The court’s leave under section 216(3) is not required where the company there referred to, though known by a prohibited name within the meaning of the section— (a) has been known by that name for the whole of the period of 12 months ending with the day before the liquidating company went into liquidation, and (b) has not at any time in those 12 months been dormant within the meaning of section 252(5) of the Companies Act.”
“The purposes for which section 216 was enacted can be gleaned – in part at least – from the excepted cases under the rules. Rule 4.228 permits a director of an insolvent company to act as director of a new company with a prohibited name provided that the business of the insolvent company has been acquired under arrangements made by an insolvency practitioner and notice has been given to the creditors of the insolvent company. That rule identifies, and meets, two elements of mischief: first, the danger that the business of the old insolvent company has been acquired at an undervalue – or is otherwise to be expropriated – to the detriment of its creditors; and, secondly, the danger that creditors of the old company may be misled into the belief that there has been no change in the corporate vehicle. The phoenix must be disclosed as such. The third excepted case in rule 4.230 shows that the mischief is not thought to exist in a case where the company having a prohibited name has been established and trading under that name for a period of not less than 12 months before the liquidating company went into liquidation. The former director of the liquidating company can join, or can remain a member of, the board of such a company without restriction. That must be because the mischief is not perceived to exist when the company having a prohibited name is not a phoenix.”
“was any name by which the company was known (at the relevant time) a name under which it carried on business?”, not “was the name by which the company was known (at the relevant time) the name by which the company carried on its business?”
“I turn to the other aspect of the district judge’s judgment about which I am uneasy, his view that the legislative requirement that an association be merely ‘suggested’ indicates ‘a very low threshold’. In construing this provision it is important to bear in mind the Draconian consequences, both criminal and civil, which can all too easily flow from finding a company’s name to be a prohibited name. As stated in s 271 of Bennion on Statutory Interpretation (4th edn) p 705, the court should strive to avoid adopting a construction which penalises someone where the legislator’s intention to do so is doubtful, or penalises him in a way which is not made clear. With this well-established principle of construction in mind, I would construe the phrase ‘as to suggest’ in s 216(2)(b) rather more stringently than indicated by the judgment below. To my mind the similarity between the two names must be such as to give rise to a probability that members of the public, comparing the names in the relevant context, will associate the two companies with each other, whether as successor companies or, as here, as part of the same group.”
“217(1) A person is personally responsible for all the relevant debts of a company if at any time— (a) in contravention of section 216, he is involved in the management of the company, or (b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention in relation to the company of section 216. (2) … (3) For the purposes of this section the relevant debts of a company are— (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and (b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.” (a) in contravention of section 216, he is involved in the management of the company, or (b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention in relation to the company of section 216. (2) … (3) For the purposes of this section the relevant debts of a company are— (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and (b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.”
“(3) For the purposes of this section the relevant debts of a company are— (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company and the company was known by a prohibited name…” (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company and the company was known by a prohibited name…”
“References . . . to a name by which a company is known are to the name of the company . . . or to any name under which the company carries on business. . . .”