A recent Court of Appeal judgment in PSV 1982 Limited v Langdon is a stark warning to directors involved with a company using a 'prohibited name'.

When a company enters liquidation, its directors are restricted from involving themselves in the management of a new or existing company with the same or similar name to that of the company in liquidation. A director in breach will be personally, jointly and severally liable with the company (and any other person who is liable) for any debts incurred by the company during the period of the breach unless an exemption applies.

Background 

Mr Langdon was concurrently a director of both Discovery Yachts Group Limited (DYGL) and Discovery Yachts Limited (DYL), which went into liquidation in October 2017, making "Discovery Yachts" a prohibited name. PSV Ltd took an assignment of a judgment debt entered against DYGL in 2019. DYGL became insolvent and PSV claimed against Mr Langdon. The Court of Appeal held that Mr Langdon was ‘automatically’ personally liable for the judgment debt. The debt did not have to be separately proved against him and the breach of contract giving rise to the judgment arose at the time DYGL was using a prohibited name.

Key takeaways 

Directors should be aware that the ‘prohibited name’ provisions apply to both existing and new companies and should seek immediate advice on exemptions to avoid automatic personal liability for debts of a company using or planning to use a prohibited name.