A quarter of companies have fallen foul of a Phoenix company.
A survey among UK companies by the Better Payment Practice Group (BPPG) has found that a quarter have been stung by a phoenix company.

Phoenix companies, where the assets of one Limited Company are moved to another legal entity, are perfectly legitimate. Companies can fail for any number of reasons and the phoenix arrangement allows the profitable elements of the failed business to survive, offering some continuity for both suppliers and employees. However, in some cases, directors abuse the arrangement by transferring the assets of a failing company at less than market value before insolvency, thereby reducing the funds available to creditors when the original company becomes insolvent.

The poll, which was held on this website during January, asked businesses if they had ever fallen foul of a phoenix company. Of the 425 respondents, 26% had been adversely affected by a phoenix. In response to the poll, the BPPG has added guidance to its website to explain the legalities of the phoenix arrangement and to help businesses identify legitimate companies and avoid those who abuse the system. The new section can be found by clicking here.

Philip King, Director General of the Institute of Credit Management, said: “The results of the web poll show that the importance of credit vetting, and only extending credit when you are satisfied that you will be paid in full and on time, cannot be overstated. With a small investment in trade references, or a credit report on the directors themselves, potential creditors of a phoenix company that has been incorporated solely to abuse the system can save themselves time, worry and financial loss.

“A liquidator has certain powers to prevent potential serial abuse of the system, including the ability to hold directors who are found to have contravened the Insolvency Act personally liable for the debts of the original company. By working with Insolvency Practitioners to ensure that they have information about fraudulent phoenix companies or unscrupulous directors, businesses can help protect the interests of the UK economy as a whole.”

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