Phoenix companies have suffered from a bad reputation in the past, when directors have deliberately forced their companies into liquidation in order to buy back assets at a reduced cost. At the same time they were able to absolve their responsibility for the liabilities. The Insolvency Act 1986 has made this far more difficult to do.
It is perfectly legal to form a new company from the remains of a failed one. A director of a failed company can become a director of a new company providing he/she is not:
- subject to a disqualification order
- is not judged bankrupt, or
- is subject to a bankruptcy restrictions order or undertaking.
The 1986 Company Directors Disqualification Act allows the courts to disqualify directors whose companies have failed as a direct result of their misconduct, for a period of up to 15 years.
The Insolvency Act 1986 gives the liquidator several powers to stop those who are abusing the system. These include allowing the liquidator to take action when the failed company has entered into a sale at a lower market price at a time when the company was unable to pay its’ debts. The Act also makes it an offence for a director of a company that has gone into insolvent liquidation to be a director of a company with the same or similar name. Also that director would not be allowed to be involved in the new company’s management without the court’s permission within 5 years after the winding up. A director who contravenes the Act may be made liable for the debts of the original company after he/she became director.
Michelle Hayter, Dispute Resolution Solicitor, says “Legislation introduced in 2004 gave the Official Receiver power to apply to the court for a bankruptcy restrictions order against any bankrupt he believed to have been dishonest or in some way to blame for the insolvency. These orders can last between 2-15 years and continue to apply the restrictions of bankruptcy after discharge.”
Get in touch if you need more information on this topic. For a free initial meeting please call 01202 499255 and Michelle or a member of his team will be happy to discuss any questions you may have.