Clarification in relation to section 216 of the Insolvency Act 1986

United Kingdom

The recent case of Re Bowman Power Systems (UK) Ltd ([2004] ALL ER (D) 387 (Oct)) has clarified a point on section 216 of the Insolvency Act 1986, otherwise known as the phoenix company provision. Section 216 states that where a company has gone into insolvent liquidation, any person who was a director or shadow director of that company in the 12 months before it went into liquidation may not, for 5 years, be a director of, or be concerned in the management of, any other company that is known by a "prohibited" name.

A "prohibited" name is the name by which the liquidating company was known in the 12 months before its liquidation, or a name that is so similar as to suggest an association with that company (section 216(2)).

There are some limited exceptions to this rule set out in the legislation. In addition, directors can apply to court for consent to act as a director of a phoenix company with a prohibited name.

Re Bowman –summary facts and judgment

D was a director of a company which went into administration. D subsequently applied under section 216(3) for permission to act as a director of a company ("P Ltd"), and, notably, any other company that might bear P Ltd's name in the future.

The court granted D permission to act as a director of P Ltd, but refused to give general consent to allow D to be a director of any other company that might bear that name in future.

The point to bear in mind, therefore, is that the Court will only grant consent to directors under section 216 in connection with specific companies. Blanket permission for any company bearing that name will not be given.

For further information please contact Inga West on +44 (0) 207 367 3478 or at [email protected]; or Vicky Thompson on +44 (0) 207 367 3025 or at [email protected]