What is a Phoenix Business?
When a new business commences from the failure of a previous business this has historically been referred to as a “Phoenix Company”. It is usually run by the same management and often has a similar name to the business that failed.
The Enterprise Act 2002, which came into effect on 15 September 2003, seeks to promote entrepreneurship and enterprise and it provides support to the directors/owners of failed business ventures. This new "rescue culture" provides the chance for businesses to start over again and enables the profitable elements of the failed business to survive.
It is not illegal for a phoenix company to acquire the business and assets of the failing company following the formal insolvency of the original company, but there are rules to be followed to ensure that the phoenix company is properly set up and operated.
These rules are designed to deal with the possible situation of directors deliberately running a company into insolvent liquidation, leaving unpaid creditors, only to set up a new business trading under a similar name to that of the failed company, thereby misleading the creditors.
The restrictions associated with phoenix companies apply to anyone who was a director or shadow director of a company in the twelve months prior to it going into insolvent liquidation.
Restrictions on use of company name
A director or shadow director of the liquidated company should not be involved in the management or formation of the phoenix company without first serving formal notice on all known creditors of the liquidated company.
It is recommended that legal advice is taken in respect of this matter, to prevent the directors of the phoenix company being personally liable for the new company’s liabilities.
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