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Insolvency Newsflash 02/01/2007 Phoenix companies take a blow
The recent case of Churchill v Independent Factors and Finance Limited held that S216 and S217 of the Insolvency Act 1986 are not as easy to avoid as we have thought for the last 20 years.
The case relates to the personal liability of directors for the debts of Phoenix companies (companies that use a name prohibited under S216, usually the name or trading name of a company which has been placed into insolvent liquidation of which a director of the phoenix company was a director.). It is also a crime to be in breach of S216.
S217 makes a director personally liable, the usual way to avoid this result is for the Phoenix company to give notice under rule 4.228 of the Insolvency Rules 1986 to all the creditors of the original company that the director is involved with the new company.
Churchill decided that the notice will only be effective if, at the time when the notice is sent out, before the director concerned is involved in the management of the successor company. In most Phoenix operations this will be almost impossible to manage.
In most cases the only alternatives will be either not to use the prohibited name of the original company or to apply to court under S216(3) within 7 days of the liquidation.
We would strongly advise that you amend any standard advice that you give to directors in both Liquidations and Administrations
We at SGH are happy to advise directors and make these applications to court for a fixed fee.
For more information please contact any of the Insolvency Partners.
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This Newsflash is issued by the Insolvency Law Department. Should you require further help and advice please contact Edward Judge edwardj@sghlaw.com , or your usual contact at SGH on 0207 544 5555. This newsflash summarises complex case law and should not be relied upon in any way as a definitive statement of the law.
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