Saying No to 2.0: Repeat business in insolvency

“Phoenixism”, where a company is liquidated and a similar one restarts in its place, usually with the same directors and shareholders, is controversial, to say the least.  For the owners, it is understandable; the business may be all they know, and it is an opportunity for them to start afresh, doing what they do best and enjoy, and maintaining their likely vital income stream.  The literal costs – of liquidation or administration and paying for the assets once again – are worth it to them.

However, company 2.0 may find that, rather than accepting the phoenix business, people react to it negatively.  Here are a few pitfalls I’ve seen in my cases recently:

• Suppliers are likely to impose far tighter credit terms. They may also increase prices, as a way of trying to recoup their loss from the previous company’s failure.
• HMRC may make a ‘requirement for a security deposit’ for both VAT and PAYE, forcing the new company to make significant cash payments to HMRC very early in its trading life.
• Landlords may be reluctant to assign or grant new leases, at least not without a new rent deposit, or an increased rent.
• Some customers may stop trading with the Company, especially if there has been some disruption to supply as part of the transition in trading entities.

All too often, this practical rejection of company 2.0 by the majority of stakeholders results in it falling into insolvency once more.  There’s usually nothing wrong with the directors turning to the same licensed insolvency practitioner they used for the first company to help them again.

At WSM Marks Bloom we have three Licensed Insolvency Practitioners ready to speak with individuals and companies in financial distress.  Give us a call at WSM’s Kingston Office on 020 8939 8240 or email insolvency@wsm.co.uk, and an expert will be ready to assist you.