Co 1: Bad name Ltd (trading company)
Co 2: Good name Ltd (dormant company)
My question is as follows;
Can I change the name of Co 2 to something different and then change the company name of Co 1 (bad name Ltd) to Good name Ltd.
I can't see any problems with that. You'll have the usual paperwork and fees as regards CRO but other than that it should be straight forward enough. Best option is to give them a quick call before you go ahead just to make sure.
Yes, you can change the company names - you can swap them if you want. There are numerous corporate requirements (Board meeting, EGM, permission from CRO etc.) so you'll need to research that and have all the right meetings and file all the right forms. But it's completely do-able.