When it is not okay to start a new company
When starting again can be, or can lead to, misconduct.
Starting a new company is not wrong. Setting up a new company following an insolvency can be a good thing. There can be positive outcomes from restarting, such as helping to save jobs and serving the local community.
Misconduct related to starting again
Some behaviour related to starting up a new company could be seen as misconduct. Some examples of this are where:
- there is abusive phoenixism
- the directors of the new company are personally bankrupt or disqualified from managing a limited company
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there is a pattern of behaviour, with directors not learning from past company failures
- the directors use the company for fraudulent purposes
- the rules about reusing the old company’s registered name and trading name have not been followed - read our Hub page on reusing an insolvent company name for more details
What we mean by phoenixism
Phoenixism is when the same business or directors trade successively through a series of companies which liquidate or dissolve leaving debts unpaid.
Abusive phoenixism is when individuals use companies repeatedly to evade debts or for fraudulent purposes.
You can read more about phoenixism here.
Action relating to misconduct
Directors involved in misconduct may face disqualification. Disqualification can last for up to 15 years and you cannot be a director or control a company in that time. If you ignore the disqualification rules you could face criminal proceedings. Read the full guidance on director disqualification.
HMRC have powers to issue ‘joint and several liability’ notices to directors and others associated with the company after it becomes insolvent. This could make you personally liable for company debts.
Example
Two companies took deposits from customers and underquoted on a big job. This meant that the companies couldn’t pay their tax bills.
So, HMRC wound up the companies. Customers lost their deposits. John was the director of one company and Peter was the director of the other company.
Correct steps to take
John sought professional advice. He purchased the old company’s name and all its assets from the liquidator before starting a new company.
This time, he always costed jobs carefully before quoting for work and made sure that the company always filed its tax returns and paid any tax due on time.
Incorrect steps to take
Peter did not seek any advice. He set up a new company with a similar name.
He moved the assets to his new company without paying for them. He did not tell the liquidator about the assets.
He continued to under quote to get work, so the company couldn’t pay its tax again.
This second company was also wound up by HMRC and more customers lost their deposits. He then set up a third company doing the same type of work.
What could happen
If he takes these incorrect steps, Peter might be disqualified from being a company director.
He also might be prosecuted because he did not tell the liquidator about company assets and reused the company name without permission.
The liquidator might make him pay for the assets that he took. He could also be personally liable for any debts incurred by the second or third company.
If the Insolvency Service receives enough complaints from customers, it might ask the court to wind up the third company to protect the public and HMRC from further losses.