Caught in the act: The rise of unlawful phoenix companies

23 September 2013

There is a lot of controversy surrounding the idea of “phoenix companies" and creditors can often feel aggrieved to find someone who owed them money trading again without significant consequences.

To start a new company doing the same type of business following a liquidation the directors need to fulfill certain requirements; those who don’t, run the risk of committing a criminal offence.

One of the main causes for this is when a limited company is put through liquidation and a director of that business continues to trade under a name which is either similar or identical. This is prohibited under Section 216 (2) of the Insolvency Act, where it states:

For the purposes of this section, a name is a prohibited name in relation to such a person if-         (a)  It is a name by which the liquidating company was known at any time in that period of 12 months, or         (b)  It is a name so similar to a name falling within paragraph (a) as to suggest an association with that company

Whilst it is clearly stated that such an act is illegal, the number of phoenix companies taken action upon has doubled in the last year. In the financial year of 2011/2012, the Insolvency Service took action in 85 cases. However in the financial year of 2012/2013 this had risen to 163 cases.

Many people believe that they can simply offload their debts by starting up a new business under a similar name; don't fall into the same trap. If you wish to continue in business following your company liquidation then it is very important to take advice. Section 216 is a legal minefield so please call us if you have any questions.