What is a Phoenix Company and are They Legal?

A phoenix company is a new company that takes over from an old one, carrying on the same business with the same people but leaving the debts behind. It is legal in England and Wales, but only if you follow the rules.

Get the name rules wrong and you can commit a criminal offence and become personally liable for the debts the new company runs up while you are involved with it under the old name. Other failures can give the Insolvency Service grounds for disqualification.

Starting again is allowed, so the real question is narrower: whether your plan for the name, the assets and the staff meets the rules that apply to a director of a company that has just failed.

Three sets of rules do the work. Section 216 of the Insolvency Act 1986 limits reusing the old company’s name. If you buy the business back through an administrator, the pre-pack administration rules add checks on any sale to people connected with the old company. And the Insolvency Service looks at any phoenix arrangement as part of its conduct investigation into the old company’s directors.

Quick Answer: Are Phoenix Companies Legal in the UK?

Yes. There is no law against starting a new company after the old one has been liquidated. You can incorporate a new company, trade in the same industry, serve the same customers, and employ the same staff.

But you must comply with section 216 (trading name restrictions), you must not buy the old company’s assets for less than they are worth, and you must not act as a director while you are disqualified or an undischarged bankrupt, unless the court gives permission.

Expect the arrangement to be noticed. Creditors who lost money in the old company and then see you trading with the same customers can report it to the Insolvency Service, and if the phoenix was not done properly, an investigation turns a commercial grievance into a personal problem for you.

Section 216: Phoenix Company Trading Name Restrictions

Section 216 of the Insolvency Act 1986 applies to anyone who was a director of a company in the 12 months before it went into insolvent liquidation. For five years from the date of liquidation, they must not be involved with a company or business that uses the same name, or a name so similar as to suggest an association, unless the court gives permission or an exception applies.

Breach is a criminal offence carrying up to two years’ imprisonment, and you become personally liable, alongside the new company, for the debts it runs up for as long as you are involved with it under the prohibited name.

Changing one word does not, by itself, make it a different name for section 216. “Smith Construction Ltd” becoming “Smith Building Services Ltd” is likely to be caught. The test is whether the name suggests an association with the old company. If a customer would reasonably assume the new company is connected to the old one, the name is too similar.

Exceptions to section 216:

• Court permission. You can apply to the court for permission to use a prohibited name. That means a hearing and legal costs, and the court considers whether the old company’s creditors would be prejudiced. If you apply within seven business days of the liquidation, you can act for up to six weeks while the court decides.
• Successor company notice. Where the new company buys the business from the liquidator or administrator, you can use the name if, before you act, you give notice to every creditor of the old company you know or can reasonably find, and publish the notice in the Gazette. The notice must be given no later than 28 days after the purchase completes. You cannot use this route once you have already used the name.
• Name already in use. The new company has already been known by the name for the whole 12 months before the liquidation, and was not dormant during that time.

Where the new company is buying the business from the liquidator or administrator, we advise using the successor notice. The court application is expensive and uncertain. The notice route costs little more than a Gazette fee, and its only real trap is timing: miss the window or use the name first, and the route is closed.

Buying Old Company Assets for the Phoenix Company

If you want the new company to buy assets from the old one (equipment, stock, customer database, the business name), pay full market value. An independent valuation and proper documents are the best evidence that you did.

Buying the old company’s assets through a company you control for significantly less than their value can be a transaction at an undervalue under section 238, and the liquidator can ask the court to reverse it.

Since 2021, a sale of all or a substantial part of the business to a connected party in the first eight weeks of administration needs either creditor approval or an independent evaluator’s report under the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021. We cover this in detail in our pre-pack administration guide.

We tell directors the valuation must be professional and independent, because a figure you produced yourself, or one from a friend who happens to be a surveyor, carries little weight once it is questioned.

The liquidator will examine the purchase price against the independent valuation, and the Insolvency Service may look at it too. If the price was too low, the liquidator can challenge the transaction.

The TAAR: Phoenix Company Tax Risk After MVL

If you closed the old company through a members’ voluntary liquidation (MVL), the route for closing a solvent company, and extracted the surplus at capital gains rates, and then carry on the same or a similar trade within two years, the Targeted Anti-Avoidance Rule (TAAR) can apply.

It applies where you held at least 5% of a close company and it is reasonable to assume that a main purpose of the winding up was to reduce income tax. This reclassifies your MVL distributions from capital gains to income, significantly increasing your tax liability.

Take a director who closes a profitable company through an MVL, extracting the reserves at the 18% rate of Business Asset Disposal Relief, and then starts a new company doing the same work for the same clients within weeks.

If the rule applies, HMRC can tax the distribution as dividend income instead (35.75% at the higher rate and 39.35% at the additional rate for 2026/27) and charge the difference plus interest, which wipes out the reason for using the MVL.

We advise: if you plan to continue in the same trade after an MVL, take specific tax advice on the rule before proceeding. The two-year window is strict.

What the Insolvency Service Looks for in Phoenix Companies

The Insolvency Service treats phoenix companies as a conduct matter. They look for:

• Did you comply with section 216 (trading name restrictions)?
• Were assets purchased at fair market value with independent valuation?
• Were creditors of the old company informed?
• Did staff move across properly under the Transfer of Undertakings Regulations (TUPE)?
• Was the phoenix pre-planned before the old company entered insolvency (suggesting the insolvency was orchestrated)?
• Is this a serial pattern (multiple companies liquidated and phoenixed)?

Serial phoenixing (repeatedly liquidating companies and starting new ones to shed debts) is the pattern that attracts the most serious consequences. Repeated phoenix arrangements that leave creditors out of pocket can lead to a long disqualification. A single, properly conducted phoenix after a genuine business failure is very different from a pattern of abuse.

Phoenix Companies: Steps Directors Should Take

1. Check you are not disqualified. A disqualification order prevents you from being a director of any company, or taking part in running one, unless the court gives permission.
2. Comply with section 216. Use a different name, or follow one of the three exceptions (court permission, a successor notice when the new company buys the business from the liquidator or administrator, or a name the new company already used for the 12 months before the liquidation).
3. Get an independent valuation for any assets the new company buys from the old one.
4. Document everything. The purchase agreement, the valuation, the successor notice and the staff transfer should all be in writing.
5. Take tax advice if the old company was an MVL. The anti-avoidance rule may reclassify your distributions.
6. Speak to a licensed insolvency practitioner. They can advise on the correct process and ensure the phoenix is structured to survive scrutiny. Company Debt is a licensed UK insolvency practice. A confidential consultation will clarify what you can and cannot do.

FAQs on Phoenix Companies

Related Guides

• Pre-Pack Administration: selling the business to a connected buyer through an administrator.
• Director Disqualification: the ban that would stop a restart altogether.
• What Happens After Company Liquidation?: where the old company’s assets, staff and records go.
• Members’ Voluntary Liquidation: closing a solvent company, and where the anti-avoidance rule bites.
• Are Directors Personally Liable for Company Debts?: every route to personal liability, including the name rules.
• Transferring Assets Before Insolvency: when a sale to your new company can be reversed.