Phoenixing : Understanding the practice, legalities, and controversies
Updated July 2026
What is Phoenixing?
Phoenixing is a term which derives from the mythical phoenix bird that rises from its ashes. It refers to the practice where the directors close down a failing or insolvent company, and subsequently establish a new company to continue the same business, often under a similar name. This manoeuvre allows them to avoid paying the old company's debts while maintaining the essence of their operations.
Legalities surrounding phoenixing
In the UK, phoenixing is not illegal per se but it must be done within the framework of the law to avoid potential ramifications. The Insolvency Act 1986 governs the process of company insolvency, and within its remit, specific rules are designed to protect creditors' interests.
One such provision is section 216 of the Insolvency Act 1986. Subject to limited exceptions, it prevents a person who was a director or shadow director of a company during the 12 months before its insolvent liquidation from being involved, for five years, in another company using the same or a sufficiently similar name.
The restriction is subject to three principal exceptions. These apply where the appropriate notice is given to creditors following the purchase of the whole or substantially the whole of the insolvent company’s business, where the court grants permission, or where another company was already actively trading under the prohibited name throughout the 12 months before the insolvent company entered liquidation.
A breach of section 216 is a criminal offence and can result in director disqualification. It may also make the individual personally liable under section 217 for certain debts incurred by the successor company while they are involved in its management.
A recent High Court decision has clarified the scope of the pre-existing company exception. In English v Secretary of State for Business and Trade [2026] EWHC 1711 (Admin), the Court held that the exception in rule 22.7 of the Insolvency (England and Wales) Rules 2016 applies only to an incorporated company. It does not extend to a sole trader or another unincorporated business, even where that business previously traded under the same or a similar name.
Directors should therefore not assume that personal ownership of a trading name, logo or brand, or its historic use through an unincorporated business, permits them to continue using it after an insolvent liquidation.
Controversies surrounding phoenixing
Phoenixing is controversial for several reasons. Critics argue that it allows unscrupulous directors to avoid their financial responsibilities, leaving creditors, employees, and suppliers out of pocket. This practice can undermine trust in the business ecosystem, as stakeholders may become wary of engaging with companies that have a history of phoenixing.
This practice can also be seen to distort competition. New companies arising from the ashes of their insolvent predecessors often have reduced debt burdens, enabling them to undercut competitors who stick to fair trading practices and pay their dues. This can lead to market imbalances and reduced economic fairness.
Consumer impact
Phoenixing can be detrimental to consumers for several reasons. When a company phoenixes without addressing its prior obligations, consumers may find themselves without recourse for warranties, returns, or refunds on previous purchases. The new company, despite operating under a familiar brand, is not legally obliged to honour the commitments of its predecessor.
Furthermore, phoenix companies may engage in aggressive cost-cutting measures to establish themselves quickly, potentially compromising product quality and customer service. This erosion of trust can lead to a less reliable market environment, ultimately affecting consumer confidence and satisfaction.
How to phoenix properly
To phoenix a company lawfully and ethically, directors should follow these key steps:
- Seek Legal Advice: Consulting with legal and insolvency professionals ensures compliance with the relevant laws and regulations.
- Transparent Communication: Directors should communicate openly with creditors, employees, and stakeholders about the insolvency and the formation of the new company.
- Address the Prohibited Name Restrictions Before Trading: If the new company intends to use the same or a similar name, directors must establish that one of the statutory exceptions applies or obtain the court’s permission. Historic use of the name by a sole trader or another unincorporated business will not satisfy the pre-existing company exception.
- Proper Valuation and Sale of Assets: The old company’s assets should be independently valued and sold at fair market prices, ideally overseen by an insolvency practitioner.
- Adherence to Tax Obligations: Ensuring all tax liabilities are settled and not simply transferred to the new entity is critical.
These issues should be addressed before the successor business begins trading, issuing invoices, operating a website or otherwise presenting itself under the prohibited or similar name. Waiting until after trading has begun may expose the director to criminal proceedings, disqualification and personal liability.
Record keeping by the Insolvency Service
It is imperative to note that the Insolvency Service holds company records for a minimum of six years from the date of the insolvency case's closure. These records are accessible to the public and include details of company directors, financial statements, and reports by insolvency practitioners. This transparency aims to deter fraudulent phoenixing by maintaining a historical account of directors' conduct.
Industries prone to phoenixing
Certain industries are more susceptible to phoenixing due to the nature of their operations and market conditions. The construction industry, for example, sees frequent occurrences of phoenixing due to its high risk and low-margin environment. Retail and hospitality sectors also exhibit notable instances, especially during economic downturns.
According to the UK Insolvency Service, there has been a notable shift in business insolvencies. In the period spanning 2023-2024, the number of compulsory liquidations and creditors' voluntary liquidations has increased to approximately 19,820. This rise underscores a growing trend in business failures, which may inadvertently present more opportunities for phoenixing activities.
In summary, transferring an insolvent company’s business into a new entity can be lawful, but the process is subject to strict legal requirements. The decision in English demonstrates that the exceptions to the prohibited name rules will be interpreted according to their precise wording. Directors should not rely on informal assumptions about the historic ownership or use of a name and should obtain advice before taking any steps to establish or promote a successor business.
Contact Isadore Goldman today if you would like advice on the matters raised above, either as a director, creditor or other party involved.