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

Bellway to build 183 high quality new homes Royal Bowland Park street scene NEW.jpg.jpg

Bellway to build 183 high quality new homes

29 Oct 2025

2

University of Lancashire recognised for entrepreneurship and supporting business growth - Representatives from the University's Business School, local SMEs and the IOEE

University of Lancashire recognised for entrepreneurship and supporting business growth

29 Oct 2025

3

£8bn Typhoon order is great news for Lancashire BAE Typhoon ECRS Mk2 Radar

£8bn Typhoon order is great news for Lancashire

28 Oct 2025

4

Award-winning Lancashire wedding venue and hotel is sold The Mill at Conder Green

Award-winning Lancashire wedding venue and hotel is sold

28 Oct 2025

5

PM+M announces another 19 promotions across the firm PM+M promotions

PM+M announces another 19 promotions across the firm

27 Oct 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
November / December 2025 Magazine Launch Event
Holiday Inn Hotel
Networking
28 Oct 2025 - 18 Nov 2025

November / December 2025 Magazine Launch Event

Holiday Inn, Blackpool

16:46 - 16:45

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

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

Women scaling up Blackpool Fylde and Wyre
LBV Hub Seminars
22 Oct 2025 - 09 Jan 2026

Women scaling up Blackpool Fylde and Wyre

The Small Business Academy, Blackpool, FY4 5JX

09:30 - 15:30

RISE - Lancashire's unique leadership programme for women
thumbnail_Emma Weston Illustration WENDY BOWERS RISE Illustrstion.jpg.jpg
LBV Hub Seminars
22 Oct 2025 - 18 Mar 2026

RISE - Lancashire's unique leadership programme for women

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:30 - 15:30

Chamber Breakfast Networking – November
Lancs-cham-logo.jpg.jpg
LBV Hub Networking
06 Nov 2025 - 06 Nov 2025

Chamber Breakfast Networking – November

Porsche Centre South Lakes, Carnforth, LA6 1FW

08:30 - 10:30

Lancashire Police business update with The Police and Crime Commissioner
Lancs-cham-logo.jpg.jpg
LBV Hub Roundtables
10 Nov 2025 - 10 Nov 2025

Lancashire Police business update with The Police and Crime Commissioner

Lancaster Castle, Lancaster, LA1 1YN

14:00 - 16:00

AI, Creativity, and what it means to be human
2.jpg.jpg
LBV Hub Networking
11 Nov 2025 - 11 Nov 2025

AI, Creativity, and what it means to be human

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 20:00

Beyond the Brand: Building trust through values and integrity
1.png.png
LBV Hub Networking
11 Nov 2025 - 11 Nov 2025

Beyond the Brand: Building trust through values and integrity

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 20:00

The Business Network Central and East Lancashire
LBV Hub Networking
13 Nov 2025 - 13 Nov 2025

The Business Network Central and East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

The AI Lab: E-commerce
Ai Lab ecommerce (1).png.png
LBV Hub Seminars
14 Nov 2025 - 14 Nov 2025

The AI Lab: E-commerce

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

09:00 - 11:30

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