Tougher action on phoenix companies

Harris & Co chartered accountants report that the last year has seen a near doubling in enforcement activity against directors of businesses that have gone into liquidation and then set up again unlawfully as ‘phoenix companies’ using the same name, according to City law firm RPC.

RPC’s analysis shows that in 2012-13 the Insolvency Service took action on 163 cases where phoenix companies used ‘prohibited’ names, by re-using the name of a recently liquidated company without court permission or notifying creditors. This compares with just 85 in 2011-12.

Vivien Tyrell, partner at RPC, said: ‘Company directors that do this are seeking to capitalise on the customer base, brand currency and goodwill of a previous business but leave behind their financial obligations, rising totally unscathed from the ashes of insolvency. This isn’t fair on creditors, competitors or customers, so it’s encouraging to see that breaches of the rules are being clamped down on.’

Tyrell pointed to changes to the UK insolvency regime introduced a decade ago which were designed to give directors another chance and allow them to start out again more easily, saying there was always the risk the new system could be abused.

‘Insolvency practitioners are very alive to this issue, particularly in the wake of the financial crisis. They have developed good communication lines to report suspected breaches to the Insolvency Service, for whom targeting unlawful phoenix companies is quite an easy enforcement “win” as it’s not hard to prove that a name is being re-used unlawfully,’ Tyrell said.

Insolvency trade body R3 welcomed the increased action from the Insolvency Service, saying it was very important for the creditors of insolvent businesses to see wrongdoing being brought to justice.

In a statement, R3 said: ‘Insolvency Practitioners are under a legal duty to report any suspected “wrongdoing” by the directors of a failed business, including the use of names which are the same as or similar to the name of the failed company without the necessary permissions to the Insolvency Service. These reports are an important part of the insolvency practitioner’s role in defending creditors" interests.’