PHOENIX RESTART BUSINESSES

A company is referred to as a "Phoenix" when a new business commences from the failure of a previous business. It is usually run by the same management and has a similar name to the business that failed.

It is not illegal to start up a Phoenix company following the liquidation of the original company, but there are rules to be followed to ensure that the Phoenix company is properly set up and operated.

The rules are designed to deal with the abuse of directors deliberately running a company into insolvent liquidation, leaving unpaid creditors, only to set up a new similar business trading under a similar name to that of the liquidated company. The restriction applies to anyone who was a director or shadow director of a company in the twelve months ending with the day before it went into insolvent liquidation.

RESTRICTIONS ON USE OF COMPANY NAME
A Phoenix company may not use any name by which the liquidating company was known in the last 12 months, or a name which is so similar that it suggests an association with the liquidated company, unless there is an arrangement with the Liquidator to acquire substantially the whole of the business of the insolvent company, or the new company with the similar name has been known as such for 12 months prior to the creditors meeting of the liquidated company and has not been dormant.

A LEGITIMATE SALE OF THE ASSETS
A professional valuation is the key to having a legitimate sale of assets from one company to another. Aside from the obvious tangible assets, consideration must also be given to the value of intellectual property and the value of goodwill. Although these are not easily valued, they must be given careful consideration before any transaction takes place.

The physical assets of the company can be valued on three bases:-

• Forced sale - the estimate of the expected realisation of the assets if there were to be an auction.
• Open Market- the expected realisable value for the assets if they did not have to be sold quickly and instead time was available to test the market for the best price.
• Value to the business

If a director of the old company wishes to sell the assets to a Phoenix company it must be at the higher of the above valuations.

PRE PACKS
A pre-packaged sale (or pre pack as they are usually referred to) is a process whereby the old company is placed into administrative receivership and a Phoenix company acquires the assets, goodwill and trade for a value that is acceptable to the administrative receiver. Prior to the appointment of the receiver, funding for the new company is sourced, so that the business can be acquired with the minimum of delay.

With proper advice in many instances it is possible to have such a pre-packaged sale even prior to the liquidation creditors meeting thus safeguarding jobs, your future and indeed maximising returns to creditors.

CROWN PREFERENCE
On the 15th September 2003 the rights of crown creditors to claim unpaid VAT and unpaid PAYE with "preferential" priority was abolished. There is now a different order of priority as to who gets what in any insolvency process.

Debenture holders (usually the bank) now rank ahead of unsecured creditors (these now include PAYE and VAT). So if you have personally guaranteed your company bank liability, this could be good news, as any purchase of the assets by the Phoenix company will be used to reduce the bank debt in the first instance and thereby reduce the amount of debt that you will have to settle personally with the bank.