Phoenix company
Encyclopedia
A phoenix company is a commercial entity which has emerged from the collapse of another through insolvency
.
The new company is set up to trade in the same or similar trading activities as the former, and is able to present the appearance of "business as usual" to its customers.
, by reducing risk and improving the chances of continued trading and business development
. The law allows the directors of a failed company to be reinstated in the same, or similar posts in the Phoenix Company.
The re-use of the trading name of the original company is, however protected to some extent in law, to help ensure the interests of investor
s and other creditor
s are not damaged by a lack of transparency relating to the Director's involvement with failed a company, and continued involvement with its Phoenix. This protection takes the form of rule 4.228 of the insolvency rules 1986 (United Kingdom), and requires a "notice to creditors of an insolvent company of the re-use of a prohibited name" to be published in the local Gazette
in order to alert investors to potential risk. This declaration permits the re-use of a prohibited company name in the new company, as well as the return of the former directors to work in the new company.
The website of the UK Attorney General says:
"It is perfectly legal to form a new company from the remains of a failed company.
Any director of a failed company can become a director of a new company unless he or she is:
from the former company, with the Phoenix company having shed all liability
to cover the debt http://www.fpb.org/news/2269. Moreover, the select committee have also raised concerns that the law may "adversely affect competitors, who will continue to carry costs which the phoenix company has shed"
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
.
The new company is set up to trade in the same or similar trading activities as the former, and is able to present the appearance of "business as usual" to its customers.
Phoenix Companies in the UK
Company law in the UK has been formed to enable such activity in order to protect and promote entrepreneurshipEntrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...
, by reducing risk and improving the chances of continued trading and business development
Business development
A subset of the field of commerce, business development comprises a number of techniques and responsibilities which aim at:1. Researching new types of business/products/services with an emphasis on identifying gaps in the mitigation of needs of potential clients .2. Attracting new customers3...
. The law allows the directors of a failed company to be reinstated in the same, or similar posts in the Phoenix Company.
The re-use of the trading name of the original company is, however protected to some extent in law, to help ensure the interests of investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s and other creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s are not damaged by a lack of transparency relating to the Director's involvement with failed a company, and continued involvement with its Phoenix. This protection takes the form of rule 4.228 of the insolvency rules 1986 (United Kingdom), and requires a "notice to creditors of an insolvent company of the re-use of a prohibited name" to be published in the local Gazette
Gazette
A gazette is a public journal, a newspaper of record, or simply a newspaper.In English- and French-speaking countries, newspaper publishers have applied the name Gazette since the 17th century; today, numerous weekly and daily newspapers bear the name The Gazette.Gazette is a loanword from the...
in order to alert investors to potential risk. This declaration permits the re-use of a prohibited company name in the new company, as well as the return of the former directors to work in the new company.
The website of the UK Attorney General says:
"It is perfectly legal to form a new company from the remains of a failed company.
Any director of a failed company can become a director of a new company unless he or she is:
- Subject to a disqualification order or undertaking
- Personally adjudged bankrupt
- Subject to a bankruptcyBankruptcyBankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
restrictions order or undertaking."
Criticism
There has been criticism in both the media and in Parliamentary quarters, not least from the select committee for "Business, Enterprise and Regulatory Reform". The criticisms raised include the adverse effect on small to medium sized suppliers to a failed company, whose position as creditors leaves them having to write off bad debtBad debt
A bad debt is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed...
from the former company, with the Phoenix company having shed all liability
Liability
A liability can mean something that is a hindrance or puts an individual or group at a disadvantage, or something that someone is responsible for, or something that increases the chance of something occurring ....
to cover the debt http://www.fpb.org/news/2269. Moreover, the select committee have also raised concerns that the law may "adversely affect competitors, who will continue to carry costs which the phoenix company has shed"
Sources
- http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/legislation/uk/insolvencyrules.pdf
- http://www.publications.parliament.uk/pa/cm200809/cmselect/cmberr/198/19806.htm
- http://www.thompsons.law.co.uk/ltext/123-workers-rights-insolvency.htm
- http://www.telegraph.co.uk/finance/yourbusiness/2933144/Phoenix-firms-spark-fly-by-night-fears.html
- http://www.accaglobal.com/general/activities/policy_papers/archive/business/22075
- http://www.cfi.ltd.uk/about.html
- http://books.google.com/books?id=hHorRDLsq_QC&pg=PA377&dq=%22Phoenix+Company%22+-inpublisher:icon&as_brr=0
- http://www.eventmagazine.co.uk/news/search/869945/Phoenixing-Tempers-flare-phoenix-rises/
- http://www.accountancyage.com/accountancyage/features/2040580/stop-phoenix-rising-ashes
- http://www.attorneygeneral.gov.uk/nfsa/nfrc/FAB/Pages/PhoenixCompanies.aspx