When a company faces financial difficulty, liquidation can sometimes feel like the end of the road. However, in certain circumstances, directors may have the opportunity to start afresh with a new business that rises from the ashes of the old one. This is known as a “phoenix company”, and while the concept can offer a genuine route to recovery and job preservation, it also comes with strict legal rules and serious risks if not handled properly.
At Simple Liquidation, we regularly advise directors who are considering starting again after insolvency. It is essential to understand how phoenix companies work, when they are allowed, and what legal requirements must be met to avoid accusations of misconduct.
Understanding the concept of a Phoenix Company
A phoenix company is a new company that emerges from the liquidation of an old one, often carrying on the same or a very similar business. The term “phoenix” comes from the mythical bird that is reborn from its own ashes.
In practical terms, a phoenix company might:
- Trade in the same sector or from the same premises as the old company.
- Employ the same staff or directors.
- Purchase the assets of the old company, such as equipment, contracts or goodwill.
- Operate under a similar or even identical trading name (though this is tightly regulated).
The key point is that the old company, which has been placed into liquidation, no longer exists as a legal entity. The phoenix company is a completely new company in law, even though there may be continuity in people and activities.
Why directors form phoenix companies
When managed correctly and transparently, a phoenix company can be an entirely legitimate and positive process. It can help to preserve jobs, keep valuable skills and assets in the market, and ensure continuity of services for clients.
There are several reasons directors may decide to form a phoenix company after liquidation:
- Preserving the viable parts of a business – Sometimes a company fails because of one major contract, rising costs, or a single large debt, not because the underlying business model is flawed.
- Retaining staff and customer relationships – Restarting under a new company allows experienced employees and loyal clients to continue working together.
- Protecting value for creditors – By purchasing the assets of the old company at fair market value, directors can ensure that creditors receive funds from the sale, which may not happen otherwise.
- Allowing a genuine second chance – Entrepreneurship involves risk, and insolvency does not necessarily reflect incompetence. A phoenix company gives capable directors the opportunity to rebuild responsibly.
The legal framework: Sections 216 and 217 of the Insolvency Act 1986
The law recognises that phoenix companies can serve a legitimate commercial purpose but also understands the potential for abuse. To prevent directors from using insolvency to escape debts and start again immediately under the same name, Sections 216 and 217 of the Insolvency Act 1986 set out strict rules.
Section 216 deals with the re-use of company names. It states that a director of a company that has gone into insolvent liquidation cannot, for five years, be involved in another company using the same or a similar name as the liquidated one, unless they have specific permission.
Breaching this rule is a criminal offence and can also lead to personal liability for the debts of the new company.
Section 217 enforces this by holding directors personally responsible for the debts of any company that breaches Section 216. In other words, if you trade under a prohibited name, you lose the protection of limited liability.
The exceptions: when directors can reuse a company name
There are three main exceptions that allow directors to re-use the same or a similar trading name after liquidation, provided they follow the correct procedure.
- Court approval
A director can apply to the court for permission to re-use the name. This application must be made within seven days of the liquidation, and permission must be granted within six weeks. This is the most formal route but ensures full compliance with the law.
- Purchase from the liquidator
If a director or the new company purchases the whole or substantial part of the old company’s business from the appointed liquidator or administrator, the name may be re-used if the required notices are sent. The director must notify all creditors and publish a notice in the London Gazette within 28 days of the sale.
- Existing use before liquidation
If another company (for example, a subsidiary) was already legitimately using a similar name before the old company entered liquidation, it may continue doing so.
Each of these exceptions involves strict deadlines and documentation. Getting professional advice from a licensed insolvency practitioner is vital to ensure the process is lawful.
Why the rules exist
These legal safeguards are in place to protect creditors, employees, and the wider business community. Without them, directors could simply abandon their debts, rebrand overnight and continue trading without accountability.
The rules are designed to:
- Prevent directors from misleading creditors into believing they are dealing with the same company.
- Ensure transparency when assets are transferred.
- Maintain public confidence in the limited liability system.
- Distinguish between genuine business rescue and unethical “phoenixing,” where directors repeatedly leave unpaid debts behind.
The dangers of getting it wrong
Ignoring the phoenix company rules can have serious consequences. Breaching Section 216 is a criminal offence, punishable by fines and potential disqualification as a director. Furthermore, under Section 217, any debts incurred by the new company while it trades under the prohibited name can become the personal responsibility of the director.
Even if the new business is profitable, a technical breach can expose directors to significant financial and legal risk. This is why expert insolvency advice at the start of the process is so important.
How to form a phoenix company safely
If you are considering starting a new business after your old company has been liquidated, there are several steps you should take to stay compliant and protect yourself:
- Seek professional insolvency advice early – Contact a licensed insolvency practitioner before taking any steps to restart trading.
- Do not transfer assets informally – Assets must be sold at fair value, preferably through the liquidator. This ensures transparency and protects you from accusations of undervaluation or preference.
- Avoid misleading customers or suppliers – Make it clear that the new company is a different legal entity, even if it operates in the same industry.
- Follow all notification requirements – If you intend to re-use a similar name, meet the publication and creditor-notice deadlines under Section 216.
- Keep clear records – Maintain documentation of valuations, sale agreements and advice received. Good record-keeping demonstrates that you acted in good faith.
How Simple Liquidation can help
At Simple Liquidation, we guide directors through the liquidation process and, where appropriate, help them explore lawful routes to restart their business. Our role is to ensure that every step complies with UK insolvency law and that directors understand their obligations and options.
Our liquidators, Jamie Playford FABRP MIPA and Alex Dunton MABRP, are licensed by the Institute of Chartered Accountants in England and Wales (ICAEW) and authorised by the Insolvency Practitioners Association (IPA). Together, they bring over 30 years of experience in helping directors close companies correctly, avoid personal liability and, when appropriate, start anew in full compliance with the law.
We understand that directors are sensitive to the costs of liquidation. Whether your company is solvent and you need a cost-effective exit, or insolvent and you must act quickly to prevent further risk, our pricing is transparent and proportionate. We handle the process from start to finish, ensuring that you remain informed and supported at every stage.
Final thoughts
A phoenix company can be a legitimate, constructive way to rescue a viable business after financial failure. However, it is also one of the most misunderstood and tightly regulated areas of insolvency law in the UK. The difference between a lawful restart and an unlawful act can come down to following the right steps and getting proper advice.
If your company is struggling and you are considering starting again, contact Simple Liquidation for professional, no-obligation advice. We will explain your options clearly, help you stay compliant, and guide you through every part of the process with confidence and integrity.
Simple Liquidation – providing straightforward, professional support to directors who need a quick and simple solution to liquidate and move forward.