What is a "Phoenix" company?
A phoenix company is one which acquires some or all of the assets of a Limited Company which is in liquidation. Often the new company will have some or all of the previous company’s directors. Also, it may be using a name which is the same or a similar to the insolvent business’s name.
It is legal to form a new company from the remnants of a failed company. Also, a director of a failed company can become a director of a new company unless he is prevented perhaps by disqualification, or bankruptcy.
The 1986 Insolvency Act has imposed stricter rules over the insolvency process and, also, limits on a director’s ability to form a new company. In particular, the Act makes it an offence for a director of a company which has gone into insolvent liquidation to be involved in the management of a company (whether as a director or not) with the same or a similar name, without meeting specific requirements. These are detailed in section 216 of the Insolvency Act. A director who does not comply with the requirements of the Act commits a criminal offence and may be held liable for the debts of the new company whilst he was involved with the management of the company.
The Insolvency Practitioner has a duty to investigate the affairs of companies in liquidation and make a report on the activities of the directors
However, if you are a creditor of such a business, it is essential that you help the Insolvency Practitioner to understand the causes of failure. If you believe that the company is withholding information about its assets, or if you have information about the conduct of the company, you should write to the Insolvency Practitioner giving the relevant facts.
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