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The term ‘phoenix company’ refers to a new company that has been specifically created for the purpose of continuing the business of an insolvent company which ceases to exist. The sale or transfer of the business and assets of the insolvent company often occurs through the use of a pre-pack administration, or a pre-pack liquidation. In order for this to go ahead, assets from a previous enterprise that was no longer viable, will be purchased at market value by the directors of the new company. It will often have the same board of directors as its predecessor and may even be permitted to use a similar trading name, provided that strict guidelines are adhered to.
A phoenix company is able to pick up right where its predecessor left off, provided it has purchased the assets at market value. It will, however, be free from the debt that forced the old company into insolvency. The money realised through selling the assets will be used to make repayments to creditors after deductions for the costs and expense of the insolvency process, and any remaining debt will be legally written off, giving the company a fresh start.
Is it legal to set up a phoenix company?
It is perfectly legal to set up a phoenix company, as long as the assets are acquired at market value following a formal insolvency process such as a pre-pack administration or liquidation. This ensures that all regulations are complied with and all creditors are dealt with appropriately.
The advantages of a phoenix company
Where the use is permitted, they have several advantages over other processes.
- A phoenix company can help preserve the jobs of employees. This will not only protect their livelihoods but also reduce redundancy pay-outs and may increase the amount of money available for distribution to creditors.
- The phoenix company will be able to continue trading free from its historic debt using the assets of its predecessor, providing they have been bought at market value. It may even be able to continue using the same premises if the landlord agrees.
- The phoenix company may be able to continue to do business with many of its old suppliers and customers.
- In certain circumstances, the company may be able to continue trading using a similar name to its predecessor. This preserves the brands, goodwill and previous marketing efforts.
Can a phoenix company re-use its predecessor’s trading name?
It is possible in some instances for a phoenix company to use a similar or near-identical name to its predecessor, however, several regulations apply. Failure to adhere to these regulations can result in fines, loss of limited liability and even imprisonment, so advice should be sought from a reputable solicitor before any decisions are made.
A phoenix company is a business which is reborn in the ashes of its predecessor. The process is known as a pre-pack administration or liquidation and it enables a new business to be created, with the historic debt of the previous company written off. It cannot trade with the same name and all assets that are transferred must be sold at market value.
How we can help
The procedure of creating a phoenix company is a complicated process that should only be dealt with under the supervision and guidance of a licensed insolvency practitioner. We have years of experience dealing with phoenix company’s, pre-pack administrations or pre-pack liquidations, so if you think one of these options might be appropriate for your business, get in touch for a free, confidential chat today.