Wednesday, 31 August 2011

UK: Scotland: director's liability for company debts following reuse of company name

Lord Bannatyne, sitting in the Court of Session (Outer House), gave his opinion in Advocate General for Scotland v Reilly [2011] CSOH 141 last month. In doing so found that a director was liable under Section 217 of the Insolvency Act (1986), which provides for the personal liability of company directors in respect of a company's debts following a contravention of Section 216. Section 216 imposes criminal liability where, broadly put, a director acts in regard to a company containing a prohibited name without the leave of the court. A prohibited name in these circumstances is one identical to, or so similar as to suggest an association with, a company that has gone into insolvent liquidation with which that director was involved.

In the current case, the company names were "Aqua Seal IT Ltd" and "Aquaseal UK". Lord Bannatyne said that these names were very similar but did not contain a unique identifier such as a personal name. He noted, too, the argument that Aquaseal was a generic term used by companies providing wall and roof coverings. However, he said that the comparison should be made by looking at all of the circumstances in which the names were used or were likely to be used, including the fact that the two companies carried out very similar work and both traded from premises in Glasgow. This led him to conclude that the use of the name "Aquaseal UK Ltd" was so similar as to suggest an association with "Aqua Seal IT Ltd".

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