Ever find yourself wondering what a Phoenix company is? Many people aren’t quite sure what these companies are and whether they are even legal for that matter. 

Let’s have a look at what you need to know about this issue so that you can stay informed. 

What Is A Phoenix Company?

A Phoenix company is used to describe a company that has been started by an individual who was running a previous company, but where that company went into liquidation or administration. 

By forming a Phoenix company, they were able to stay afloat without losing their customers or their overall brand recognition. 

When the Phoenix company is formed, the assets of the old business are essentially purchased by a party that is connected to the previous company, meaning the new company that’s being formed can be operated with trading in a very similar manner without any interruptions whatsoever. 

Are Phoenix Companies Legal? 

So is this a legal practice? Can business do this without worry when trouble is around the corner with their current state of affairs? 

There are many people who have a deep misunderstanding of what these companies are all about and as to be expected, the entire practice can be a very controversial one when looking at things from the creditor’s standpoint. 

They will see this new company starting up, looking very similar to the last one who did owe them money, but now this new company doesn’t have all the liabilities that the former one did – meaning, they aren’t going to be paid. 

Forming a Phoenix company is a legal practice, provided certain guidelines are followed. 

First, the name of the company must not be the exact same as the name of the company that went into liquidation within the first twelve months of the process taking place. 

In addition to that, if the director of the company that went into liquidation was faced with any sort of charges of misconduct, they are not able to be the director of the new company for a specific time period. 

Finally, there is hope for the creditors to which the previous business owned money to as if the new business is not reporting its assets correctly, it is essentially committing fraud and can be reported to the Financial Ombudsman Service and Financial Services Authority. 

New legislation laws may be coming out in the future with further regulations in place regarding this fraud issue as well. 

So there you have everything you need to know about Phoenix companies. While they are completely and entirely legal, many people do not necessarily agree with the practice and feel that it is an unfair way to seamlessly end one business and start up another. 

For those going out of business however, you can see why it may be an attractive option.