ESS Production Ltd (In Administration) v Sully

A company carries on business under a name for the purposes of sections 216 and 217 of the Insolvency Act 1986 where it uses that name for some substantial business activity. The name need not be used for the whole business or for formal documents.

The third excepted case may apply where a company uses more than one prohibited name, whether concurrently or successively. The singular references to a prohibited name in rule 4.230 of the Insolvency Rules 1986 include the plural.

Personal liability under section 217(3) is confined to debts incurred while business is carried on under a prohibited name.

A director of a company in insolvent liquidation subsequently remained a director of another company whose registered name became ESS Solutions Ltd. It was admitted that this was a prohibited name and that the claimed debts would otherwise fall within section 217 of the Insolvency Act 1986.

The county court held that the director could not rely on the third excepted case in rule 4.230 of the Insolvency Rules 1986. Although the successor company had long used “ESS” informally, the judge concluded that it had not carried on the whole of its business under that name.

The director appealed. The creditor cross-appealed, contending that rule 4.230 required the company to have used the precise prohibited name throughout the qualifying period. The central issues concerned multiple business names, the meaning of carrying on business under a name, and the extent of personal liability under section 217(3).

Appeal allowed and cross-appeal dismissed unanimously.

1. Lady Justice Arden held that section 216(6) of the Insolvency Act 1986 does not require a company to carry on the whole of its business under the relevant name. Its reference to “any name” under which a company “carries on business” encompasses a name used for some substantial part of its business. Requiring use for every business function would improperly add words to the section and would enable avoidance by conducting a small amount of business under another name.

2. The expressions “a prohibited name” and “that name” in rule 4.230 of the Insolvency Rules 1986 include the plural. Sections 6 and 23(1) of the Interpretation Act 1978 applied because no contrary intention appeared. The exception may therefore cover prohibited names used concurrently or successively during the qualifying period. This construction advances the exception's purpose of excluding active, non-phoenix companies from sections 216 and 217.

3. The company had carried on business under “ESS” throughout the qualifying period. The longstanding and prominent use of the acronym on its notepaper and products was neither casual nor insubstantial. Communications addressed to “ESS” or “ESS Limited” were accepted and acted upon. Use of the registered name on formal documents and invoices did not prevent “ESS” from also being a name under which business was carried on.

4. Section 217(3) must be construed as limiting personal liability to debts incurred while the company was known by a prohibited name and, where the prohibited name was a trading name, to debts incurred in the course of business under that name. A literal construction extending liability to debts incurred when no contravention existed was unlikely to reflect Parliament's intention.

5. Lord Justice Chadwick agreed. He emphasised that rule 4.230 removes cases where an existing active company was already known by the feature linking it to the liquidating company. Lord Justice Auld agreed with both judgments.

1. Court of Appeal (Civil Division): The director's appeal was allowed and the creditor's cross-appeal was dismissed unanimously: [2005] EWCA Civ 554.
2. Winchester County Court: HHJ Hughes QC entered judgment for the creditor for £21,450.65 plus interest on 4 June 2004. The judge granted permission to appeal.