When a Company closes it can be for a variety of reasons and sometimes, if that reason is removed from the equation, the business that failed could be profitable and sustainable.
What is a Phoenix Trading Company?
A business that starts again with the same directors and shareholders is often referred to as Phoenix Trading. Sometimes, and if the correct processes are followed, the new business can trade with the same name as it had previously.
Phoenix Trading entities are generally frowned upon and have had a bad reputation following a spate of Companies that were deliberately liquidated only to commence trading again prior to the Insolvency Act 1986 implementing new rules. That stigma is still around in today’s business world, but with stringent rules in place to stop any untoward practices, that reputation has faded somewhat.
The term Phoenix Trading has come from the commencement of a new Company through the failure of the previous business.
Is it Illegal to Start a Phoenix Company?
It is not illegal to start up a Phoenix Company. Sometimes the failure of the previous Company can lead to the new business becoming highly successful. There are very strict rules which need to be followed when starting a Phoenix Company, but with the correct advice and guidance, it could be the key to future success.
The rules are strict to prevent directors from deliberately running up debt in an old Company and then buying the assets back for a nominal sum before commencing once again.
Can I be a director of Phoenix Company?
There are no rules to stop any person becoming a director of a Phoenix Company. However, there are restrictions of any directors, or shadow directors who were involved with a previous Company’s failure.
Can I call a Phoenix Company by the same name?
Any director, shadow director or anyone else who held themselves out to be in control of a Company that enters into liquation should not take part in the management, formation or the running of a new Company that holds itself out to be the same business without first following some very important guidelines.
Any person who thinks that they might fall foul of these rules, must take independent legal advice. You will more than likely be required to serve notice on all of the creditors of the liquidated Company.
Is there anything I need to be aware of if I form a Phoenix Company?
Yes, and as we have already mentioned, it is not a simple as setting up a new Company and commence trading. You will need some legal advice. We have access to many legal advisors who specialise in this field and can provide you with the guidance that you need. We can provide you with a free guide to Phoenix Trading and the restrictions that you could face. If you would like a copy, please contact us.
In the event that you do not take the correct legal advice, or follow the correct procedures, then the directors of the new Company could become personally liable for that Company’s debts.
In buying back the assets of a failed business of which you were a director or shadow director, you should give careful consideration to the transaction that you will be entering into. Invariably, it will be the appointed Liquidators that will enter into an agreement with you to sell you the Company’s assets, but on occasion, a sale is completed pre-liquidation and this could cause complications. It is imperative that in consideration a Phoenix Company, that you get an independent valuation of the Company’s assets. This not only protects you from the possibility of the transaction being overturned by the duly appointed Insolvency Practitioner, but it could protect you from being accused of a transaction at an undervalue.
It will not only be the physical assets that will require a valuation, but the intellectual property and goodwill too.
Recently introduced legislation (2021) can now make directors of insolvent (Phoenixed) companies personally liable for that company’s outstanding tax liabilities including PAYE, NI and VAT.
Details here: Directors’ Potential Liability For Company Tax Liabilities
Can CFS restructuring help me with a Phoenix Company?
CFS Restructuring LLP have licensed insolvency practitioners who can advise on all aspects of your Company’s finances and about the possibilities of rescuing your business if it is suffering financially.
We can provide you with the guidance that you need to determine whether, in the first instance, your current Company can be saved from entering a formal insolvency procedure. Should this not be a possibility, we will openly discuss with you the options that are available, the possibility of a Phoenix Company and what matters you need to be aware of and consider.
If you are concerned about your Company’s financial affairs ad believe that the business of that entity is fundamentally sound given for certain issues that have been suffered, get in contact with CFS Restructuring LLP today for free one to one advice and guidance.