What’s in a name?

This can arise in a number of situations.

• The invoice is raised to a trading name.

A business will usually operate under a ‘trading name’. This will be the name on the business signage, at the top of their website, i.e. informally, what they are known as.

It’s important to understand the legal entity behind the trading name. Are you dealing with a sole trader or an incorporated company? An unlimited partnership or a Limited Liability Partnership? An individual consumer or public limited company (PLC)? For example, if Ben Smith opens a coffee shop, he might call it Ben’s Coffee. This would be the trading name. The legal entity however might be ‘Smith’s Drinks Limited’, registered at Companies House with company number of 78945612, or it might be simply be ‘Ben Smith trading as Ben’s Coffee’.

• The beneficiary of the goods or services is using an intermediary or agent.

Say Ben does choose to incorporate his coffee shop business as Smith’s Drinks Limited. Ben needs to purchase a regular supply of coffee beans, and so he asks his brother, Bill, to find him a coffee supplier. Bill approaches Worldwide Coffee Limited, who agrees to provide a weekly supply of coffee. This is agreed with Bill by telephone and a few emails discussing the price and instructions for deliveries.

The coffee shop does good business for a few months, but then goes into insolvency. Worldwide Coffee Limited goes to Bill and asks for payment of invoices relating to three weeks of coffee deliveries. Bill tells them that he had arranged the deliveries for his brother’s company, and will not be paying the invoices. Worldwide Coffee Limited did not have a written contract with either Bill or Smith’s Drinks Limited. Worldwide Coffee Limited’s claim against Bill for their outstanding invoices can be uncertain, and careful consideration of all their communications with Bill is now needed to determine how best to recover their funds.

• The original company has entered an insolvency process and the directors have started a new, but similarly named, company (Phoenixing)

Ben enjoyed running a coffee shop, and decides he wants to try again. He sets up a new company called Smith’s Drinks (2025) Limited. Worldwide Coffee Limited wonder if they can recover their outstanding debt from Ben’s new company.

Smith’s Drinks (2025) Limited is what’s known as a ‘phoenix company’ and as long as Ben has complied with all his duties as a director of Smiths’ Drinks Limited and with certain statutory requirements for the reuse of the old company name, there is nothing wrong with setting up a phoenix company (although Worldwide Coffee Limited decide they will only supply coffee to Ben if he makes payment upfront). If Ben has not complied with all his duties in relation to Smith’s Drinks Limited, the liquidators of this company may take action against Ben personally. But Worldwide Coffee Limited would not be able to do anything against Ben or Ben’s new phoenix company.

The message here is: be clear about who you are contracting with, especially if offering credit terms. If you are unsure, it’s worth taking advice so that you don’t waste costs pursuing the wrong legal entity.