Guidance

Phoenix companies and the role of the Insolvency Service

Updated 24 March 2017

1. Phoenix companies

Phoenixing, or phoenixism, are terms used to describe the practice of carrying on the same business or trade successively through a series of companies where each becomes insolvent (cannot pay their debts) in turn. Each time this happens, the insolvent company’s business, but not its debts, is transferred to a new, similar ‘phoenix’ company. The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.

2. The law in relation to phoenixing

Companies can fail, be dissolved or face financial difficulties for a variety of reasons apart from misconduct.

So, the law allows owners, directors and employees of insolvent or dissolved companies to set up new companies to carry on a similar business. This is as long as the individuals involved are not personally bankrupt or disqualified from acting in the management of a limited company.

When a company goes into administration or liquidation, the administrator or liquidator will try and get in as much money as possible to pay creditors. Sometimes the best offer will be from the former directors or owners to buy back part or all of the business, including the company’s name or trading name. This is sometimes called a ‘pre-pack’ administration. The law allows this.

However, generally, when a company enters liquidation (this is often referred to as being wound up), insolvency law restricts who can reuse the company’s registered name and trading names.

Unless any exception applies, anyone who was a director in the 12 months before the company went into liquidation is banned from taking part in the management of another business with the same name. This ban lasts for 5 years and also covers names which are so similar they suggest an association with the previous company. More information on the restrictions on re-using a company name after insolvent liquidation and details of the exceptions that allow it.

3. The Insolvency Service’s role

Some companies fail because of director misconduct. It’s our role to investigate suspected cases of misconduct and take action against those who have acted against the public interest.

When a company enters into formal insolvency proceedings, such as liquidation or administration proceedings, the proceedings are managed by an insolvency professional. This is either an insolvency practitioner or an official receiver. They will review the company’s affairs and look at the conduct of the directors. If they suspect possible misconduct, they must confidentially report their concerns to the Insolvency Service for investigation. There is more information about our insolvent company investigations.

If a company has been dissolved, complaints about the conduct of a company’s directors can be made to the Insolvency Service. We have discretionary powers to investigate where it’s appropriate. More information about our dissolved company investigations.

We also have discretionary powers to investigate the affairs of companies that are not in formal insolvency proceedings and have not been dissolved if we suspect there might be serious misconduct in the company. More information about our live company investigations.

If we find evidence of unfit conduct, the Secretary of State has the power to seek a director’s disqualification where it’s in the public interest and there is sufficient evidence to satisfy the court.

4. What we cannot investigate

We cannot use our powers to investigate or resolve individual commercial disputes between companies and their employees, customers, creditors or shareholders. For example, where the complaint is about:

  • not paying an individual creditor (such as a customer or supplier)
  • not paying an employee’s wages
  • not providing a customer with goods or services that they have paid a deposit for
  • supplying a customer with faulty goods
  • decisions made by directors that a shareholder disagrees with

These examples are not usually evidence of unfit conduct and are generally considered to be consumer or commercial issues. However, they might be taken into account if they are part of a larger pattern of unfit behaviour.

The main purpose of our investigative powers is to protect the general public and the business community. Individual disputes like those listed must be settled without our involvement. If necessary, you should get independent legal advice to resolve these issues.

5. Director misconduct

Examples of the types of behaviour that can lead to a director’s disqualification include:

  • fraudulent behaviour
  • not submitting tax returns or paying tax and any other money due to the Crown
  • continuing to trade to the disadvantage of creditors at a time when the company was insolvent
  • conduct that deliberately removes assets that should have been available to pay creditors
  • letting somebody else run the company for the director
  • not making sure the company is run properly
  • not keeping or producing appropriate accounting records
  • not preparing or filing accounts at Companies House
  • not filing annual returns at Companies House
  • not complying with other regulations
  • not co-operating with any official receiver or insolvency practitioner appointed to the company

You can complain to the Insolvency Service, Companies House or the Serious Fraud Office if you suspect a limited company or its directors of fraud or serious misconduct.