What is a "phoenix" company?
‘Phoenix company’ is a term used to describe a successor business to an insolvent company. One that has ‘risen from the ashes’ (See this Wikipedia entry)
In practice this is often a company which acquires some or all of the assets of a Limited Company which is in a formal insolvency procedure such as liquidation. Often the new company will have some or all of the previous company’s directors and staff. Also, it may be using a trading name or style the same or a similar to the predecessor insolvent business’s name.
It is entirely legal to form a new company from the remnants of a failed company. Also, a director of a failed company can become a director of a new company unless they are personally prohibited by disqualification (proceedings or undertakings), or bankruptcy.
However, the 1986 Insolvency Act (section 216) places restrictions on the use of the same or similar name or trading style of a failed business (insolvent liquidation only).
The Act makes it an offence for any person who has been a director or shadow director of the liquidated company during the 12 months prior to liquidation to be involved in the management or carrying on of a company (whether as a director or not) with the same or a similar name to that of the liquidated company.
This restriction is for 5 years from the date of liquidation.
A director who does not comply with the requirements of the Act commits a criminal offence and may be held liable for the debts of the new company whilst they were involved with the management of the company.
There are circumstances in which these requirements cease to apply (outlined in Rules 4.226, 4.227, 4.228, 4.229 and 4.230 of the Insolvency Rules 1986).
It is important to be aware of these rules even if your company is considering an alternative insolvency procedure, as should, for example, a company exit administration by way of creditors voluntary liquidation, s216 will apply on the company entering liquidation.
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