Phoenix Companies

September 17, 2023

A phoenix is, according to Wiki: an immortal bird that cyclically regenerates or is otherwise born again.

A “phoenix company” is a term often used to describe a business that has been dissolved or liquidated due to financial difficulties, insolvency, or mismanagement but is subsequently revived or reborn as a new company. This new company is often started by the same individuals or stakeholders who were involved with the original company, but it may have a different name and a fresh start.

The term “phoenixing” can sometimes carry negative connotations because it may be associated with unethical practices. In some cases, individuals or business owners use phoenixing as a way to evade creditors, avoid paying outstanding debts, or escape legal obligations. They may deliberately liquidate the old company to get rid of its financial burdens and liabilities, only to re-establish a similar business under a different name.

I have seen this done by a local catering business, not just once, but four times. It’s also a tactic that can be used in divorce cases where one parent is seeking to avoid paying maintenance or child support – one good reason why you should always seek legal advice when you set up a business. Nothing lasts forever: from people splitting up to one party dying tragically.

Phoenixing can be illegal if it involves fraudulent activities or attempts to deceive creditors or authorities. Several countries have implemented measures to prevent or punish these practices. However, please bear in mind that if this is a personal issue, which includes any business(es) you may start up, that you will have to bear the costs, time and stress involved. Even if your case is successful, does the other party have the funds to pay any award made against them?

It’s important to note that in some cases, a genuine effort is being made to turn the business around and operate more successfully under a new structure or management. The key distinction lies in the intent and legality of the actions taken during the process.

As with all these, things, if you feel that a company you are dealing with may be in financial difficulties, take the necessary steps to minimise your exposure.

If you feel that your business is struggling financially, please reach out to your accountant or other business support partner. Things may not be as bad as you think and it’s often easier to try and sort things out early on.  

If you want to share anything with one of us on here, please contact us directly. 

 

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