Ricketts v Ad Valorem Factors Ltd.

Under sections 216 and 217 of the Insolvency Act 1986, a former director may incur criminal liability and personal liability for a company’s debts where its name is sufficiently similar to an insolvent company’s name to suggest an association. The names must be compared in the context in which they are or are likely to be used. Relevant circumstances include the businesses, products, locations, customers and persons involved.

The provisions extend beyond phoenix companies and may apply to existing companies within the same group. Actual deception, confusion or misrepresentation is unnecessary. Given the provisions’ severe consequences, the similarity should create a probability that members of the public would associate the companies. Once the statutory conditions are satisfied, the court has no discretion to withhold personal liability.

The appellant had been a director of Air Component Company Limited shortly before it entered insolvent liquidation. He subsequently remained a director of Air Equipment Company Limited, which incurred debts to Hankison UK Limited. Hankison assigned the debts to the respondent.

The respondent alleged that Air Equipment Company Limited used a prohibited name within section 216(2)(b) of the Insolvency Act 1986, making the appellant personally liable under section 217. The Redditch County Court gave summary judgment for the respondent. Permission was granted for a direct appeal under the leapfrog procedure.

The central question was whether Air Equipment Company Limited was a name so similar to Air Component Company Limited as to suggest an association with it.

1. Appeal dismissed. Mummery LJ, with whom Simon Brown LJ agreed, held that Air Equipment Company Limited was known by a prohibited name within section 216(2)(b) of the Insolvency Act 1986. The appellant was consequently personally liable under section 217 for the relevant debts incurred while he was involved in its management.

2. Sections 216 and 217 are not confined to phoenix companies or cases involving exploitation of an insolvent company’s goodwill. Their natural and ordinary language extends to other situations, including associated companies within an existing group. The absence of asset transfers, dishonest debt accumulation, creditor avoidance or actual deception therefore did not prevent their application. Thorne v Silverleaf [1994] 1 BCLC 637 was applied.

3. The comparison required by section 216(2)(b) is contextual. The court must consider the names in all the circumstances in which they were actually used or were likely to be used. Those circumstances may include the products traded, the businesses’ locations, their customers and the persons involved in operating the companies. In that context, the two names suggested that the companies were associated as members of the same group.

4. Simon Brown LJ rejected the District Judge’s description of the statutory requirement as a very low threshold. Because contravention carries severe criminal and civil consequences, the phrase “as to suggest an association” should be construed more stringently. The similarity must give rise to a probability that members of the public, comparing the names in the relevant context, would associate the companies. That stricter standard was satisfied.

5. No proof of express misrepresentation, actual deception or confusion was required. Once the name was found to be prohibited and the remaining statutory conditions were met, the court had no discretion to relieve the director from personal liability. A director may avoid the statutory risk by withdrawing from management or promptly applying for leave under section 216(3), subject to any prescribed exception.

The appeal was dismissed with costs. Permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The appeal was dismissed by Simon Brown and Mummery LJJ. The County Court’s summary judgment was upheld.

2. Redditch County Court: District Judge Mackenzie gave summary judgment under Part 24 of the Civil Procedure Rules 1998 against the appellant for £8,235.03 and costs. The judge granted permission for a direct appeal under Part 52.14.