Judgment in First Independent Factors & Finance Ltd v Mountford [2008] EWHC 835 (Ch) was given today. The trial judge, Lewison J., was required to consider a number of issues concerning Sections 216 and 217 of the Insolvency Act (1986). The main purpose of these sections is to deal with what has become known as the "phoenix syndrome": the continuation of a company's business, through a new company, where the original company has gone into insolvent liquidation. Section 216 prohibits the directors of the insolvent company from re-using the insolvent company's name (or a similar name) as part of the new venture. Contravention of Section 216 can result in the director's personal liability for the debts of the new company.
With regard to Sections 216 and 217, Lewison J. made the following points:
(a) Whilst the "phoenix syndrome" is the main target, the words of Sections 216 and 217 include situations that cannot be described as falling within this description. The operation of Sections 216 and 217 should not be confined to cases of "phoenix syndrome". [Ad Valorem Factors Ltd v Ricketts [2004] 1 All ER 894 was cited in support].
(b) When deciding whether a name suggests an association with another company, the person through whose eyes this should be considered is someone who might deal with the company or business. This person is closer to Laddie J's formulation of a "reasonable person in the relevant commercial field" (in HM Revenue & Customs v Walsh [2006] BCC 431) than Simon Brown LJ's reference to "members of the public" (in Ad Valorem Factors).
(c) "Association" can be based on ownership (e.g., between members of the same group of companies) or assets (e.g., where a successor company has the goodwill of the liquidated company).
(d) The defence available under rule 4.230 of the Insolvency Rules (1986) applies where a company was previously trading. Rule 4.230 referred to "company" and this could not be interpreted as "business".
(e) The court does not have the power under Section 727 of the Companies Act (1985) to relieve a director against liability imposed by Sections 216 and 217.
[Section 727 of the 1985 Act has been replaced by Section 1157 of the Companies Act (2006), the latter coming into force on 1 October 2008].
Spread The Love, Share Our Article
Subscribe to:
Post Comments (Atom)
Popular entries
-
Incident: Sick Kids physician loses portable hard-drive with unencrypted personal health informationA physician from Sick Kids hospital who decided to travel with a portable hard-drive containing unencrypted health information on 3,300 pat...
-
According to an article in USA Today, Facebook is following in the footsteps of Google and others by using targeted ads. I'm not at all ...
-
On June 23, Australia's Parliamentary Joint Committee on Corporations and Financial Services published a report titled Better sharehold...
-
INSOL Europe recently published a report titled Harmonisation of Insolvency Law at EU Law Level : see here ( pdf ). The report outlines di...
-
Apparently the American government is about to implement its latest version of the no-fly list, without data mining using commercial sources...
-
The Information and Privacy Commissioner of Alberta released a very interesting order today, considering whether the right to freedom of exp...
-
"Police tried to calm the teen, but Holyfield became combative, according to the statement. Officers fired the stun gun at him after he...
-
Section 309 of the California Corporations Code provides that a director must act in good faith, in the manner in which he/she believes to...
-
The International Organization of Securities Commissions has published a revised edition of its Objectives and Principles of Securities Reg...
-
The Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act after Senator Dodd and Congressman Frank and not, as...
Comments
Post a comment on: England and Wales: The phoenix syndrome, director's liability and S 727 of the Companies Act (1985)