What is a phoenix company and are they legal?

By Opus Restructuring & Insolvency

21 Mar 2023

Opus_logo_RESTRUCTURING & INSOLVENCY - small no background.png.png

‘Phoenixing’ is an unwelcome buzzword in the business community. It occurs when an indebted company is closed through an insolvency process or dissolution but is started again using the same assets and the same or a similar name. 

There is often a negative perception of phoenix companies. Some believe directors use it deliberately in order to leave behind accumulated debt to start again with a clean slate.

Does this mean a phoenix company is illegal?

No, it is a legitimate business transaction. There is a big difference between a director attempting to start a business again and one trying to avoid repaying debt. Business failures occur for many different reasons and often through no fault of the directors. 

UK insolvency law allows existing directors to buy the assets and goodwill of the insolvent company, provided they are paying the market value and are taking responsible action towards the company’s creditors.

What are the rules regarding a phoenix company?

Directors

Directors are able to set up a new business and trade in much the same way as the closed business, provided the individuals involved are not personally bankrupt and have not been disqualified from acting as directors.

Company name

Specific restrictions have been brought in under the Insolvency Act, Section 216 making it a criminal offence to use the same, or similar, name as the company that has entered liquidation for a period of five years (with exceptions). 

Pre-packaged sale

Pre-packaged sale refers to a pre-arranged sale of company assets, usually to the company directors. It is common practice to sell the assets and goodwill of the insolvent company through a pre-packaged sale. 

This can often be the best deal for directors and creditors as the pre-pack is worth more to the directors than on the open market, meaning there will be more funds available to distribute to the creditors.

The pre-pack value will need to be independently proven that it is a reasonable and fair price and the current asset value thoroughly assessed. 

One of the greatest advantages of a pre-pack sale is the rescue of jobs that would otherwise have been lost through the business closure.

When is a phoenix company prohibited?

If a company fails as a result of misconduct of the directors, the Insolvency Service will need to investigate further. If they find evidence of unfit conduct, a director disqualification can be sought. 

The director would then be banned from forming, promoting, or managing a business for a period of between 2 and 15 years.

HMRC rules

Due to the tax debt that inevitably builds through repeated ‘phoenixing’, HMRC has brought in specific guidelines to assess if a director has repeatedly used insolvency to avoid paying taxes. HMRC may also require the new company to provide a bond before allowing VAT registration. 

Not all legitimate businesses are able to succeed. But, if the profitable elements of a company are able to survive in the form of a new business, and the directors of the insolvent company have acted legally, then setting up a new company may be the best result.

There are several matters to consider such as ransom creditors, licensing issues, employees rights and the viability of the phoenix company. If you are considering a phoenix company a free consultation can be arrange to discuss these and other issues. 

Ian McCulloch can be contacted at the Preston office of Opus Restructuring & Insolvency by calling 01772 669860 / 07854 031177 or e-mailing [email protected] 

Latest news

1

Growth Plan maps out £20bn-plus investment journey Mo Isap from the Lancashire Business Board with the plan

Growth Plan maps out £20bn-plus investment journey

18 Sep 2025

2

Post Office future secured as council explores new options Abington Street Post Office

Post Office future secured as council explores new options

17 Sep 2025

3

Airframe Designs supports new defence strategy with pledge to nurture talent Jerrod Hartley

Airframe Designs supports new defence strategy with pledge to nurture talent

17 Sep 2025

4

Fox Group makes second acquisition since Stellex Capital backing Roger Thistlethwaite, managing director NMS Civil Engineering Limited. Paul Fox, CEO Fox Group. John Flood, Executive Director Fox Group

Fox Group makes second acquisition since Stellex Capital backing

17 Sep 2025

5

Villa at Wrea Green bought for £3.6m by Haythornthwaite family The Villa Wrea Green courtesy of The Villa Wrea Green

Villa at Wrea Green bought for £3.6m by Haythornthwaite family

16 Sep 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV124 September/October Launch Event
MBP Arc Cinema Preston Opening 205
Networking
18 Sep 2025

LBV124 September/October Launch Event

The Arc Cinema, Preston, PR1 2BL

08:30 - 10:30

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Ladies Lunch
Lancs-cham-logo.jpg.jpg
LBV Hub Networking
18 Sep 2025 - 18 Sep 2025

Ladies Lunch

Lancaster Golf Club, Lancaster, LA2 0AJ

12:00 - 16:00

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

Your Business, Your Region: Making sense of devolution and Local Government Reorganisation
Chorley Council breakfast event new
LBV Hub Networking
23 Sep 2025 - 23 Sep 2025

Your Business, Your Region: Making sense of devolution and Local Government Reorganisation

Worden Hall, Leyland, PR25 3DH

08:00 - 11:00

Preston Freelancer Meet-Up: September
Sept Freelancer (1).png.png
LBV Hub Networking
23 Sep 2025 - 23 Sep 2025

Preston Freelancer Meet-Up: September

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Speed Networking with BNI
2.png.png
LBV Hub Networking
24 Sep 2025 - 24 Sep 2025

Speed Networking with BNI

Chorley Football Club, Chorley, PR7 3DU

16:00 - 19:00

The Marketing Meetup IRL: Lancashire - September
TMM Lancashire
LBV Hub Networking
25 Sep 2025 - 25 Sep 2025

The Marketing Meetup IRL: Lancashire - September

Chorley, PR7 2SL

18:00 - 20:00

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) drop-in day
MTD drop in session.jpg.jpg
LBV Hub Seminars
25 Sep 2025 - 25 Sep 2025

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) drop-in day

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) drop-in day, Blackburn, BB1 5QB

10:00 - 16:00

The Marketing Metrics That Matter – Sept 25
Metris 25.09.png.png
LBV Hub Seminars
25 Sep 2025 - 25 Sep 2025

The Marketing Metrics That Matter – Sept 25

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

09:00 - 11:00

Help to grow management course
Help to grow - barriers to growth.png.png
LBV Hub Seminars
26 Sep 2025 - 16 Dec 2025

Help to grow management course

Preston Campus , Preston , PR1 2HE

09:00 - 15:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV124 Online Graphic
Subscribe now

Weekly news bulletin