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Action against unlawful “phoenix” companies doubles

ENFORCEMENT ACTIVITY against directors of companies that have undergone liquidation and re-established as ‘phoenix companies’ under the same name has doubled in the last year, according to figures produced by law firm RPC.

In 2012/13, the Insolvency Service took action in 163 cases where companies used names of recently-liquidated businesses, up from just 85 the year before.

Insolvency rules introduced in 1986 were overhauled in the 2002 Enterprise Act to make it easier to rescue insolvent companies from going under and reduce the numbers going into liquidation.

Business secretary Vince Cable recently put forward proposals to place greater culpability on the shoulders of directors, amid concerns over opacity in company ownership.

The proposals would see a central registry introduced detailing individuals with more than 25% of company shares. Additionally, courts will be given more powers to consider the impact of directors’ actions on society more widely, as well as previous failures, when considering director disqualification.

RPC partner Vivien Tyrell said: “This massive increase in enforcement activity against directors of unlawful phoenix companies shows just how many people still think they can simply offload their debts and yet carry on what is effectively the same business without anyone noticing. It’s very concerning, given that this has been an offence for more than 25 years.

“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.”

Insolvency practitioners are alive to the issue, Tyrell added, and have developed strong communication lines to report suspected breaches to the Insolvency Service, for whom targeting unlawful phoenix companies is quite an easy enforcement “win” as it is “not hard to prove that a name is being re-used unlawfully”.

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