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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What is a Business Phoenix?

Is a Business Phoenix legal?

What are the benefits of a Business Phoenix?

What is a Business Phoenix?

The vast majority of Pheonix Company Start Up’s involve the new company “purchasing” from the appointed liquidator or even the Official Receiver the assets, good will, and intellectual property rights such as trade marks, patents, web page, etc of the old company.

The offer made by former shareholders and directors for the assets and stock and IP rights for the insolvent company often gives the best return for creditors of the failed company as the incumbents have the best understanding of the value on the old company moreover understand why it failed.

Is a Business Phoenix legal?

‘Doing a phoenix’ is often misunderstood, but it’s perfectly legal and relatively simple and cheap thanks to pre-pack administration and creditor’s voluntary liquidation.

Both the Attorney General and HMRC acknowledge “It is perfectly legal to form a new company from the remains of a failed company”

However, it’s important to stick to the rules laid out in the Insolvency Act 1986, Enterprise Act 2002 and Statement of Insolvency Practice 16.

For a phoenix to be legal, the IP must:

Advertise the assets of the business and pay a fair price for them
The assets must be independently valued by a professional body
Conform to Section 216 rules concerning the use of prohibited company names (although in certain cases this may not be necessary)

There will likely be an investigation into the conduct of the directors, so seeking advice on how to continue is essential. The insolvency practitioner will have to disclose certain information to creditors once the sale is complete.

So why do Pheonix Companies have so much bad press?

Pheonix Companies are subject to negative connotations is that rogue directors get accused of transferring assets below value, to the detriment of creditors of the old company.

Lets be clear there are some directors who do use the legal framework to defraud their creditors and HMRC but what is disappointing is often that directors could have achieved an identical outcome by working legally within the insolvency legislation

What are the benefits of a Business Phoenix?

The new company can acquire assets and goodwill from the old one
The old company’s business debts are written off
It’s transparent to creditors
It often achieves a better return for secured and un-secured creditors than liquidation
The new company is debt free and trades from a position of strength

If you want to find out more about a business phoenix and want to see how it could help you get in touch with our friendly and trusted experts today.