Damping the ashes: Government seeks new controls for phoenixing

September 4, 2018

The government has announced new powers for the Insolvency Service to pursue company directors who recklessly push companies into administration or liquidation.

The announcement came shortly after Wonga, the payday lender, went into administration following an influx of compensation claims from customers.

Despite the inevitable barrage of jokes – What’s wrong with Wonga, did they lend themselves a tenner? – the Insolvency Service were still left with an administration that includes 200,000 customers owing over £400 million in short-term loans. These customers have been advised to keep paying their loans as their debts will be sold as part of the company’s administration process.

The proposed powers would allow the Insolvency Service to punish directors who drive companies into administration to escape debt obligations, pension deficits and other liabilities with fines and/or disqualifications. The government also wants to crack down on the practice of ‘phoenixing’ – where a company is dissolved, leaving the directors free to start trading again under a new name.

Whilst the majority of companies fail without any wrongdoing on the part of the directors, who should be able to try new business ventures in the future, some dissolve businesses deliberately to avoid paying debts. In certain cases, new businesses are transferring their trade to a new company, to continue trading straight away newly free of debt, and it is these people the government is targeting.

With 2018 having seen many high-profile company failures, including Carillion, Toys ‘R’ Us, House of Fraser and Maplin, and the BHS failure still in recent memory, the new rules may be a welcome development. Of course, the most important thing is to avoid going into administration in the first place, so if you would like help getting your company’s finances in order, please get in touch.

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