When it comes to closing a limited company with debts and starting a new one, you are able to do so. There are certain restrictions in place around the reuse of company name and the practicalities of carrying out a company restart.
Starting a new company – Phoenix Company
When it comes to closing a company and starting a new one, it’s often referred to as a ‘Phoenix Company’. It refers to an insolvent company which has ceased to exist, whilst another, new company has been formed. The director of the company will purchase the insolvent company’s assets. To start a Phoenix Company the initial company must be considered insolvent, however, if it’s clear that the company has a profitable core, but pressure from creditors is threatening its existence, then a Phoenix company many be appropriate.
Pre-pack Creditors Voluntary Liquidation
To start the process of a pre-pack liquidation, a company must be considered insolvent and under threat from pursuing creditors. The process will see the company liquidated through a creditors’ voluntary liquidation, with a pre-arranged sale of assets to the company director. The director is then able to start a new company, using the previous company’s assets and can begin trading, free of the old company’s debts.See more on how a Pre-pack Liquidation works here
A pre-pack administration is a procedure available to some insolvent companies if it’s deemed to be in the best interest of creditors. It involves the pre-arranged sale of all, or some of the assets from the insolvent company, they are bought by the same director and put into a new company. The initial company then follows through with the remainder of the administration process, as to extract maximum value for creditors, whilst the newly created company is free to start trading.See more on how a Pre-pack Administration works here
Restrictions on restarting a company
To avoid directors building up debt with a company and then simply putting it through liquidation to restart a new company, there are several restrictions in place, which must be met first to avoid directors closing a company without facing the consequences.
- Reusing the company name – A newly created Phoenix company cannot use the same trading name as it’s predecessor. There are certain times this can be done, however, it must fall under the legal requirements of Section 216 of the Insolvency Act 1986.
- HMRC security deposit – If HMRC believe there’s a risk your company may fail to pay its taxes, they may first require security deposit.
- Goods and Assets – Any goods and assets which are bought from the insolvent company in the process of starting a new Phoenix Company must be purchased at market value.
- Transferring employees – Employees are allowed to transfer to the new Phoenix company and may even negotiate new contract terms, workings hours and benefits but advice should be considered for an potential continuation of employment liabilities that would fall on the new company.
How we can help
If you think that your company could be suitable insolvent and facing the prospect of closing its doors, but you believe starting a new company could work, it’s vital to act quickly. We can help you assess your viable options and talk you through the best process available, so that you achieve your goals.
If you are considering the liquidation of your company, we are licensed insolvency practitioners and are able to assess your situation and put your company into liquidation, before advising on the best possible way to re-start a new company.
- Speak with our initial advisers through phone or online chat.
- After initial assessment we will identify if your company is viable for liquidation.
- We will propose to you the liquidation of your company and undertake the necessary steps.
All advice is free of charge and if a liquidation is viable it will result in the formal closure of your company, and any unsecured debts will be written off.
You are able to close an insolvent company with debts and start again. This is not a means of escaping the debt your company could be facing, but it instead allows the profitable core of a business to a have a new start and trade.
Book a free telephone consultation with one of our initial advisers