The restriction prevents ‘phoenix companies’ rising from the ashes of a liquidated company and prevents such a company being established with a clean financial record, using a similar trading name thereby creating the false, and potentially misleading, impression that nothing has changed.
Phoenix companies cause a loss in confidence in the corporate world given that whilst creditors may well be exposed to losses the new company emerges, ostensibly with an unblemished history, despite the fact that it is built upon the ashes of the liquidated company.
The sanctions for such offending are severe and can involve:
Criminal prosecution leading to a fine and/or imprisonment
The company officers and directors of the phoenix company being held personally liable for any debts of the phoenix company