Phoenix Company Liquidation Explained
If a company needs to be placed into Liquidation because it is considered insolvent but the business owners or Directors of the Company wish continue trading in some form and buy back the company’s assets then this is possible. This is often referred to as a “Phoenix Company Liquidation” or a “Buy Back Liquidation”.
It is also possible to either continue trading with the same customers or take on the contracts of the Liquidated business but there are strict guidelines on doing this that only an Insolvency Practitioner can inform you of.
Given the appearance of business owners and directors closing down one Company, leaving unpaid creditors, and forming a phoenix company to set up in business again with no obligation to pay back the insolvent company’s creditors personally, it should be noted that for this to be allowed, The following conditions must be adhered to:-
1. A Fair Value
The Liquidator’s principle duty is to maximise realisations and therefore the Insolvency Practitioner has an obligation to ensure that all assets are sold at a fair value. Therefore, the assets of the company must be made available for sale and the best offer must be accepted in order to ensure the best result for the creditors of the company is achieved. The value is determined by obtaining an professional valuation by an independent Valuer.
2. Intent to Defraud
There must be no wrongful trading or fraudulent trading where the purpose of selling assets is to defraud the creditors. This is safeguarded by providing a full disclosure of the details of any sales completed either by the company before Liquidation or by the Insolvency Practitioner during the Liquidation in order to ensure that all matters are transparent.
3. Re-use of Name
The Insolvency Act 1986 places certain restrictions on re-using a same or similar name (to that of the insolvent Company) and therefore the phoenix company must not trade with a same or similar name (to the insolvent company) even if just a trading name, unless either:-
- The name is purchased from the Liquidator and notice of the purchase is sent to the creditors of the insolvent company; or
- The phoenix company has already been trading with the same or similar name to that of the insolvent company for more than twelve months.
4. No Disqualification
If the Director of the insolvent company intends to be the director of the phoenix company then they can do this providing they were not disqualified from acting as a Director through the investigations done by the Liquidator and Insolvency Service.
Read more about Phoenix Company Liquidations.