Lauren Auburn
As anticipated, as a firm, we are now seeing an increase in insolvency enquiries and a number of those enquiries relate to scenarios where there is an underlying viable business but the option of a restructure or rescue is just not possible.
In some cases, it is not possible due to the level of debt. However, when the debt is removed it is clear that the business is viable and could continue. In this scenario, there is an option for the business and/or assets of an insolvent company to be sold to a new company which is sometimes known as a phoenix.
There is a negative perception of phoenix companies, especially where people have heard stories of existing directors buying a business and/or its assets for £1 resulting in the creditors of the old business being left ‘high and dry’. However, before any sale – if it is being dealt with correctly – the directors should obtain an independent valuation and any sale should be at market value. Any sales conducted for less than market value should be investigated by the appointed liquidator and, if appropriate, recovery action should be taken.
What many people are not aware of is that where the purchaser is connected – i.e. a director – realisations are, in most cases, considerably more compared to a sale to a third party or an auction.
The other matter to deal with when considering a phoenix is the company name. Understandably, some directors prefer to use the same name as the insolvent company, or one that is very similar, to retain goodwill. However, when a company enters into an insolvent liquidation, the directors – including shadow directors – are prohibited from reusing the same or a similar name for a period of five years from the date of liquidation and they may not take part in the formation, promotion or management of a company or business with a prohibited name, either directly or indirectly.
But, there are exceptions to this rule and, if it is essential, there is usually a way for directors to retain the name.
The legislation that deals with the reuse of a company name is very detailed. It is important to seek advice from the management team at BRI. For more advice and guidance on how best to deal with an insolvent company, contact Lauren Auburn at BRI to arrange a free, confidential consultation on 01604 754352.
