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29 April 2015

Company names: Do you know who you are contracting with?

Identifying the party you are contracting with is crucial when entering into any contract. You will need to have identified the contracting party when risk assessing the relationship, particularly if you are considering extending credit to that party. Further, if that party fails to deliver under a contract you need to know who you can take enforcement action against.

We often see clients whose contracts are uncertain or find that they have contracted with a shell company at the bottom of a long ownership chain when they thought that they were dealing with a substantial group. Save in exceptional circumstances, claims can only ever be made against the specific companies that you have contracted with.

The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014 (“the Regulations”) set out a list of regulated words for which the Secretary of State’s approval must be sought by a company wishing to use any of those words in its name.

With effect from 31 January 2015, a number of words have been deleted from that list enabling them to be used without approval having to be obtained. Among these words are ‘Group’, ‘Holding’, ‘National’, ‘International’ or ‘European’; words which many would assume mean that a company had a certain level of trading.

The change is part of the Government’s Red Tape Challenge, which aims to ease the administrative burden on companies. While this change will be welcome by many companies who will quite rightly will take full advantage of the new law, it also means that carrying out a full assessment of the entity you are contracting with is more important than ever so you are not misled as to the status of a company by relying on its name.

If you find that you are going to be contracting with a party which does not satisfy your risk assessment policy you should consider bringing in another party to guarantee the performing party’s obligations. This could be the ultimate parent company, or in some circumstances, may require the director or shareholder of the contracting party to offer a personal guarantee.

When you have determined who you are agreeing to contract with ensure that you use the correct company name, company registration number and registered office address in your contract to correctly identify the contracting party to avoid uncertainties in the future. This can be quickly checked online with Companies House at https://www.gov.uk/get-information-about-a-company.

There are of course other methods which you may rely on for extra assurance, such as tightening your payment terms, and where you are supplying goods you should always ensure that your terms and conditions contain correctly drafted retention of title clauses as such clauses will bolster your position in respect of goods supplied but not yet paid for.

If you wish to discuss any contractual issues, or if you would like us to review your terms and conditions, please contact commercial@steeleslaw.co.uk or 01603 598000.