Given the amount of debt we owe it looks like our construction company is coming to an end. Instead of dealing with the incessant calls from creditors and all of the stress that goes with it we thought we were just going to liquidate and put an end to it. That was until I found out that I might be able to continue doing business as a new company while getting rid of some or all of the debt. I’ve read that this would require us to setup a phoenix company. What exactly is a phoenix company?
A phoenix company, also sometimes referred to as a “new co,” is simply a term used to describe a new company that derives its assets and directors from an old company. The assets of the old company are purchased by its directors during administration, and then transferred into ownership of the new phoenix company so that the business can resume operating under a new corporate entity with a clean slate. It is called a phoenix company because it rises from the ashes of the old company, like the mythical firebird.
A phoenix company operates the same as any other limited company; with the only difference being that it has a bit of a jumpstart because it buys the work in progress from the directors old company takes some of the progress from the directors’ old company and the directors are not held personally liable for those debts providing there has been no misfeasance or wrongful trading.
An administration sale that involves selling the company’s assets to a phoenix company is usually referred to as a pre-packaged sale, or a pre-pack administration, because the sale of assets is pre-arranged with the board of directors.
Whilst at first glance this may seem like an unethical way for the company to keep doing business under a new name without dealing with its debts, in reality it offers the best outcome for creditors as long as the directors are willing to pay a fair price for the assets (as the proceeds from the sale of assets goes to repay debts). It is effectively a process in which the directors pull money out of their own pockets to buy the company’s assets, while simultaneously using those funds to pay off creditors.
It is a process which has saved ten's of thousands of jobs every year as the workers transfer to the new company. The new co can often offer to purchase the assets of the old company over a period of time, this is known as a deferred sale and purchase agreement.
14th February 2019
The bakery chain business Patisserie Valerie has been acquired out of administration by an Irish private equity firm called Causeway Capital Partners.Read More
13th February 2019
The department store operator Debenhams has secured access to a £40 million credit facility that should help it cope with the pressures of its ongoing funding crisis.Read More