Creation of a PHOENIX COMPANY - UK Business Labs

Pablo · #1 (**permalink**) 10-12-2008, 07:10 PM

Hi, please can someone shed some light of the legal implications if a phoenix company is in contravention of Section 216.

A former Director of a insolvent (liquidated) company within 2 months is in volved in a new business (as a Director) of a company with a phonetically same name. The Phoenix company is trading out of the same premises, using the same equipmemt, same website,same phone numbers, same email addresses and all the customers. i believe that none of this was procured from the liquidator and were not listed as assets of the old company. The Phoenix company is now trading exactly the same with the old MD of the old company. The only thing that is different is they now no longer have a 45k book debt...

I welcome any thoughts on this ref the breach of section 216 and also the penalties that may be imposed on the said Director and the Phoenix company,

regards

**Mark** · #2 (**permalink**) 08-02-2009, 10:12 AM

Any legal bods care to comment?

**Mat** · #3 (**permalink**) 09-02-2009, 10:54 PM

I'm not a legal bod, but it's definitely illegal.

PI Guy · #4 (**permalink**) 09-02-2009, 10:57 PM

it is also very common.

**Ray Stewart** · #5 (**permalink**) 10-02-2009, 09:36 AM

I know of one case, a friend of a client of mine, where the liquidator actually encouraged the director of the bankrupt company to buy the assets for £1 because this was his view on the market value of the stock - back in 1995. The fact the the shops - 3 of them - were busting full of stock seemed a little ironic at the time.

But the chap bought the stock for £1 promptly shut 2 of the shops leaving the staff as creditors in the old business and did very well out of his remaining shop for a couple of years just selling off the stock from the closed shops which he hadn't really paid for.

Then, the past caught up with him. He used to be involved in all sorts of shady and shammy business deals but the fraud squad eventually got him and he spent 2 years of his 5 year sentance in an open prison.

Before you think karma was at work here, he came out of jail having shed 5 stone in weight (thanks to the relaxed atmosphere in jail and playing tennis for several hours a day), with a bundle of friends who had all had similar pasts and were setting up a joint venture in Spain last I heard.

Needless to say my client, the former friend of this character, watched the events unfolding and wondered why more people didn't do it as the punishment seems petty against the amounts of money that were involved.

So it isn't a new thing and I don't suppose the chap you refer to in the opening thread has too many sleepless nights over his actions. We see this all the time on Watchdog, Cowboy Builders etc. The current law stinks, and certainly doesn't protect us from these people like it should.

**Mat** · #6 (**permalink**) 10-02-2009, 12:52 PM

Quote:

Originally Posted by Ray Stewart

Before you think karma was at work here, he came out of jail having shed 5 stone in weight (thanks to the relaxed atmosphere in jail and playing tennis for several hours a day), with a bundle of friends who had all had similar pasts and were setting up a joint venture in Spain last I heard.

And I've just finished updating my business plan! Right, back to the drawing board...

...I always fancied Spain.

**Ozzy** · #7 (**permalink**) 11-02-2009, 12:57 PM

There are some perfectly legitimate reasons to "pheonix" a company, but the laws are have to carefully adhered to when doing this. A friend of mine supplied an article on the subject which I included in my blog a while back...

The Blog of an Entrepreneur Phoenix or corporate restructure?

I hope this helps

ceri · #8 (**permalink**) 13-02-2009, 02:32 PM

A phoenix company, and the process involved in setting one up, is entirely legal and can be a very good course of action to take.
The great benefit of doing this is that it enables a viable business that has got unmaneable debts to recover and continue trading. With such a tough climate for businesses, this gives an opportunity to rescue a company that is struggling to exist and could otherwise go out of business. The process is quick, easy and secure with minimal disruption to trading, and therefore allows the directors and employees to remain in employment, and the customers to continue purchasing.
The formation of a phoenix company is strictly regulated by the Insolvency Act 1986 and the Enterprise Act 2002, along with very recent guidelines detailed in the Statement of Insolveny Practise #16. These strict laws, rules and regulations must be followed to ensure compliance with the legislation.
In summary, a phoenix company must be set up correctly and it can help to save jobs...this has got to be a good thing.

**Ozzy** · #9 (**permalink**) 13-02-2009, 02:38 PM

I agree, although I do also agree that it is not always good for the creditors who are left with unpaid invoices from the previous company. It's a difficult situation, but no-one said that business was easy.

Have a read up on pre-pack companies, which have got some bad press but as Cari says above does secure peoples jobs and business.

Printing&Postage · #10 (**permalink**) 03-12-2009, 07:41 PM

I know this thread's a bit aged, but it's quite a big/important topic and affects plenty of small businesses, who've acted as suppliers to companies that have been "phoenixed".

There's now a Wikipedia article on the subject, with plenty of useful links/resources for legal, practical and political info:

Phoenix company - Wikipedia, the free encyclopedia