Glossary · UK
What is Phoenix Company?
A new company set up to carry on the trade of a failed company, often using a similar name and the same directors, after the original company has entered insolvent liquidation.
Full Definition
A phoenix company is a new business that emerges to continue the trade of an earlier company that has failed and gone into insolvent liquidation, often run by the same directors, employing many of the same staff, using similar branding, and sometimes even acquiring the assets of the old business. The name comes from the image of a phoenix rising from the ashes: in many cases this is a perfectly legitimate way to rescue viable jobs, contracts and goodwill from a company that failed for reasons such as a single bad contract or a market downturn, particularly where the new company is set up through a formal, transparent process such as a pre-pack administration. UK insolvency law nonetheless places specific restrictions on phoenix activity to protect creditors from abuse: under the Insolvency Act 1986, a director of an insolvent company is generally prohibited from being a director of, or otherwise involved in managing, a new company that uses the same or a confusingly similar name (a "prohibited name") within five years of the old company's liquidation, unless specific legal exceptions apply, such as obtaining court permission or following the formal notification procedure for the sale of the business. Directors who ignore these rules can be made personally liable for the new company's debts and may face disqualification, which is aimed squarely at "serial phoenixing," where a director repeatedly liquidates companies leaving unpaid creditors behind while continuing to trade through a fresh corporate shell each time.