A Phoenix Company is one that rises from the ashes of an insolvent company. However, you need to take action when you first know your company is becoming insolvent and long before the insolvency becomes official. It’s a way to take your struggling business debt free to save your brand and staff.
Most directors or business owners go to an insolvency practitioner that is not familiar with Phoenix Companies. Resurrecting a new company from an insolvent company is a daunting task. Some Insolvency Practitioners may be familiar with the process but choose not to become involved. It’s much easier to wind up an insolvent company and pay creditors with what that brings in. For that reason, it’s vitally important that you find an Insolvency Practitioner that has successfully created a Phoenix Company before.
A Phoenix Company is a way to shed debt and get out of contractual obligations. Some people find that immoral. There is merit to that but there is also merit to saving the jobs of the staff and keeping the company in business.
A Phoenix Company is typically born out of a Pre-Pack Administration where the existing directors purchase the new company. Whatever they agree to pay for the Phoenix Company is used to repay a fraction of the debt of the old company. What the directors take to the phoenix company are the assets, staff, and work in progress of the old company. The impact to existing customers is minimal and often they are not even aware you changed companies until it is complete.
A good, licensed insolvency practitioners will help negotiate with landlords, suppliers, and draw up paperwork to move your employees to the new company. You may want to draw up contracts with old suppliers that you owe money to. These can be very difficult negotiations.
If your company is facing insolvency and you think a Phoenix Company can help, don’t do anything until you talk with an Insolvency Practitioner experienced at setting up Phoenix Companies. With that said, do it now. Before moving money and other assets into the new company. Also, you don’t want to pay some creditors when you can’t afford to pay others. Creating a phoenix company is completely legal as long as you follow the rules. Not following the rules can have serious consequences to a company owner or its board of directors.
Transforming your old dying company into a revived fresh company is paramount. But you must do it in a manner that does not open you to further liability. If you become tripped up in the process, you could lose everything.
