Business Phoenix – A New Start
Phoenix Company is a description often given to a new Limited Company established immediately following the liquidation of an insolvent business.
It is perfectly legal to form a new company from the remnants of a failed company. The phoenix company arrangement allows a business to start again and for the profitable elements of the failed business to survive, offering some continuity for both suppliers and employees.
You have built a business, worked hard and it has a value which it has built up over many years, the insolvency of your current or old company is often linked to a specific event that has caused the business to fail, if you believe that you are best placed to protect jobs and take the business forward then we need to talk about a Business Phoenix.
We are in the business of advising and helping entrepreneurs throughout the UK. In short we are in the business of second chances and we have experience in dealing with creditors and other interested parties, and can make the process run more smoothly. Preserving relationships is really important for the future success of the company, so give us a call or contact us through the website to find out how we can help.
The word ‘phoenix’ is given to these companies as in Greek mythology a phoenix bird cyclically regenerates and obtains new life by rising from the ashes of its predecessor.
When such a scenario occurs, creditors and observers frequently ask if this practice is legal, and it’s easy to see why. Often creditors, such as local authorities and water authorities, are obliged to accept such business rates customers without sanction and without question.
Is a phoenix company legal?
The truth is most companies don’t fail because of director misconduct. Therefore, from a strictly legal standpoint, there is nothing in UK law preventing owners, directors and employees of an insolvent company working for a phoenix ‘successor’, as long as the individuals involved aren’t personally bankrupt or disqualified from being a director of a limited company.
However, it should be said that if a sale takes place before the insolvency procedure, it would be investigated by a subsequently appointed insolvency practitioner.
There are also some restrictions on phoenix companies in general. For example, a phoenix company cannot have the same name or similar name to its predecessor without sanction of the court. Failure to comply will place directors in a position where they will face personal liability for company debts.
Why are phoenix companies legal?
Phoenix companies often sit badly when tried in the ‘court of public opinion’. But what observers and creditors may not be aware of are the circumstances pertinent to a phoenix company. For example:
- The directors of a phoenix company may have given personal guarantees to the predecessor company and may face personal financial pressure – similar to creditors.
- The new company may have had to provide a deposit or bond to HMRC if it required VAT registration.
- If creditors wish to deal with the phoenix, it is customary if not accepted practice to increase prices to recoup losses from the first time around.
- In order to be allowed to continue to hold office, the directors may have had to pay fines and/or provide undertakings to the Secretary of State for the Department of Business Energy & Industrial Strategy.
To summarise: provided they remain within the parameters of the law, phoenix companies are legal. However, the success of a phoenix company will depend on the market place and on the customers and suppliers with whom it trades.
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