What is a Phoenix Company and are They Legal?

A phoenix company is a new company that rises from the ashes of an old one, carrying on the same business with the same people but leaving the debts behind. It is legal in the UK, but only if you follow the rules.

Get those rules wrong and you commit a criminal offence, become personally liable for the new company’s debts, and hand the Insolvency Service grounds for disqualification.

We work with directors who want to start again after liquidation every week. Most of them can. The question is not whether phoenixing is allowed (it is) but whether your specific situation meets the legal requirements.

Section 216 of the Insolvency Act 1986 restricts the use of the old company’s trading name. The pre-pack administration rules govern connected-party business purchases. And the Insolvency Service scrutinises phoenix arrangements as a standard part of the conduct investigation. We explain below what you can and cannot do.

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 at undervalue, and you must not have been disqualified as a director.

We are direct about the reputational issue: creditors who lost money in the old company’s liquidation and then see you trading with the same customers under a new name will not be impressed. Some will report the arrangement to the Insolvency Service. The Service will investigate, and if the phoenix was conducted improperly, the consequences are personal.

Section 216: Phoenix Company Trading Name Restrictions

Section 216 of the Insolvency Act prohibits a director of a liquidated company from being involved in the management of a new company that uses the same name, or a name so similar as to suggest an association, for five years after dissolution.

Breach is a criminal offence carrying up to two years’ imprisonment, and you become personally liable for all debts incurred by the new company during the breach.

We see directors who change one word in the company name and assume that is enough. It is not. “Smith Construction Ltd” becoming “Smith Building Services Ltd” is caught by section 216. 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. The court considers whether creditors are prejudiced.
• Successor company notice. You give written notice to all creditors of the old company within 28 days of the new company starting to trade, informing them of the name and your involvement.
• Business purchase from the administrator/liquidator. If you buy the business (including the name) as part of a formal administration or liquidation sale, the name restriction does not apply, provided the purchase is properly documented.

We advise every director planning a phoenix to use the third exception (business purchase) or the second (successor notice). The court application is expensive and uncertain. The notice route is free but requires strict compliance with the 28-day deadline.

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), the purchase must be at fair market value, independently valued, and properly documented.

Buying assets from a connected party (yourself, through a company you control) at below market value is a transaction at undervalue under section 238 that the liquidator can reverse.

Since June 2021, connected-party purchases from administration require 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. A valuation you produced yourself, or one from a friend who happens to be a surveyor, will not survive scrutiny. The liquidator and the Insolvency Service will examine the purchase price against the independent valuation. If the price was too low, the transaction will be challenged.

The TAAR: Phoenix Company Tax Risk After MVL

If you closed the old company through an MVL and extracted the surplus at capital gains rates, and then start a new company carrying on the same trade within two years, HMRC can apply the Targeted Anti-Avoidance Rule (TAAR). This reclassifies your MVL distributions from capital gains to income, significantly increasing your tax liability.

We see directors who liquidated a profitable company via MVL to extract reserves at 10% (BADR), then immediately started a new company doing the same work with the same clients.

HMRC applied the TAAR, reclassified the distribution as income at up to 33.75% (higher-rate dividend tax), and issued a demand for the difference plus interest. The MVL tax saving vanished.

We advise: if you plan to continue in the same trade after an MVL, take specific tax advice on the TAAR 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 you transfer employees properly under 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. We have seen directors disqualified for 10+ years for repeated phoenix arrangements where creditors were systematically defrauded. 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.
2. Comply with section 216. Use a different name, or follow one of the three exceptions (court permission, successor notice, or business purchase).
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, the TUPE transfer: all must be in writing.
5. Take tax advice if the old company was an MVL. The TAAR 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 connects directors with regulated IPs. A confidential consultation will clarify what you can and cannot do.

FAQs on Phoenix Companies