A phoenix company is a company that ‘rises from the ashes’ of a collapsed insolvent company where existing directors or shareholders purchase the business and underlying assets in administration or liquidation. The phoenix begins trading in similar or different activities as a separate, fresh entity.
How a Phoenix Company Works
When a company is declared insolvent, it ceases to trade and may enter into formal insolvency proceedings (liquidation, administration). Its assets are transferred to the phoenix company where the directors and shareholders purchase them through proper legal procedures. They can only do so if they have investments or significant personal funds and are not disqualified or under investigation for misconduct. During the move, the creditor's assets are taken into account.
Phoenix Company Law
Phoenix company law allows owners of an insolvent company to set up, manage, and oversee the activities of the new/similar phoenix company if they are not declared personally bankrupt or disqualified from directorship. The Insolvency Service (IS) is tasked with investigating suspected cases of misconduct or actions against the publics' best interest. An Official receiver (OR) or Insolvency Practitioner (IP) reviews the company's activities under the regulations of Insolvency law.
· If the company cannot be salvaged, a phoenix company is created to trade in the same or different way. Assets are advertised, marketed, sold, and purchased by a chartered surveyor or auctioneer taking into account the creditors.
· Creditors must be notified of the sale no later than 2 weeks following the sale of the company’s assets.
· A licensed Insolvency Practitioner (IP) is required to investigate any issues of phoenix company fraud and handle pre-pack administration activities.
· According to section 216 of the insolvency act 1986, a Phoenix company must bear a new name unless sanctioned by a court of law to use the former name.
Setting up a phoenix company
This can be a complex, complicated process requiring input from professionals and experts to oversee and manage several aspects of the transformation. TUPE (transfer of undertakings (protection of employment)) is carefully considered when transferring an insolvent company to a phoenix to safeguard and protect the employees.