What is a Phoenix Company and are They Legal?

A phoenix company is a new company that rises from the ashes of an old one, carrying on the same business with the same people but leaving the debts behind. It is legal in England and Wales, but only if you follow the rules.

Get the name rules wrong and you can commit a criminal offence and become personally liable for the new company’s debts incurred while you were in breach. Other failures can give the Insolvency Service grounds for disqualification.

We work with directors who want to start again after liquidation every week. Most of them can. The question is not whether phoenixing is allowed (it is) but whether your specific situation meets the legal requirements.

Section 216 of the Insolvency Act 1986 restricts the use of the old company’s trading name. The pre-pack administration rules govern connected-party business purchases. And the Insolvency Service scrutinises phoenix arrangements as a standard part of the conduct investigation. We explain below what you can and cannot do.

Quick Answer: Are Phoenix Companies Legal in the UK?

Yes. There is no law against starting a new company after the old one has been liquidated. You can incorporate a new company, trade in the same industry, serve the same customers, and employ the same staff.

But you must comply with section 216 (trading name restrictions), you must not buy the old company’s assets at undervalue, and you must not act as a director while you are disqualified or an undischarged bankrupt, unless the court gives permission.

We are direct about the reputational issue: creditors who lost money in the old company’s liquidation and then see you trading with the same customers under a new name will not be impressed. Some will report the arrangement to the Insolvency Service. The Service may investigate, and if the phoenix was conducted improperly, the consequences can be personal.

Section 216: Phoenix Company Trading Name Restrictions

Section 216 of the Insolvency Act applies to anyone who was a director of a company in the 12 months before it went into insolvent liquidation. For five years from the date of liquidation, they must not be involved with a company or business that uses the same name, or a name so similar as to suggest an association, unless the court gives permission or an exception applies.

Breach is a criminal offence carrying up to two years’ imprisonment, and you become personally liable for all debts incurred by the new company during the breach.

We see directors who change one word in the company name and assume that is enough. It is not. “Smith Construction Ltd” becoming “Smith Building Services Ltd” is caught by section 216. The test is whether the name suggests an association with the old company. If a customer would reasonably assume the new company is connected to the old one, the name is too similar.

Exceptions to section 216:

• Court permission. You can apply to the court for permission to use a prohibited name. The court considers whether creditors are prejudiced. If you apply within seven business days of the liquidation, you can act for up to six weeks while the court decides.
• Successor company notice. Where the new company buys the business from the liquidator or administrator, you can use the name if, before you act, you give notice to every creditor of the old company you know or can reasonably find, and publish the notice in the Gazette. The notice must be given no later than 28 days after the purchase completes. You cannot use this route once you have already used the name.
• Name already in use. The new company has already been known by the name for the whole 12 months before the liquidation, and was not dormant during that time.

Where the new company is buying the business from the liquidator or administrator, we advise using the successor notice. The court application is expensive and uncertain. The notice route costs only a Gazette fee, but you must give the notice and publish it before you act, and no later than 28 days after the business purchase completes.

Buying Old Company Assets for the Phoenix Company

If you want the new company to buy assets from the old one (equipment, stock, customer database, the business name), pay full market value. An independent valuation and proper documents are the best evidence that you did.

Buying the old company’s assets through a company you control for significantly less than their value can be a transaction at an undervalue under section 238, and the liquidator can ask the court to reverse it.

Since 2021, a sale of all or a substantial part of the business to a connected party in the first eight weeks of administration needs either creditor approval or an independent evaluator’s report under the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021. We cover this in detail in our pre-pack administration guide.

We tell directors: the valuation must be professional and independent. A valuation you produced yourself, or one from a friend who happens to be a surveyor, will not survive scrutiny. The liquidator will examine the purchase price against the independent valuation, and the Insolvency Service may look at it too. If the price was too low, the liquidator can challenge the transaction.

The TAAR: Phoenix Company Tax Risk After MVL

If you closed the old company through an MVL and extracted the surplus at capital gains rates, and then carry on the same or a similar trade within two years, the Targeted Anti-Avoidance Rule (TAAR) can apply.

It applies where you held at least 5% of a close company and it is reasonable to assume that a main purpose of the winding up was to reduce income tax. This reclassifies your MVL distributions from capital gains to income, significantly increasing your tax liability.

Consider a director who liquidated a profitable company via MVL to extract reserves at 18% (BADR), then immediately started a new company doing the same work with the same clients.

HMRC applied the TAAR, taxed the distribution as dividend income (35.75% at the higher rate and 39.35% at the additional rate for 2026/27), and issued a demand for the difference plus interest. The MVL tax saving vanished.

We advise: if you plan to continue in the same trade after an MVL, take specific tax advice on the TAAR before proceeding. The two-year window is strict.

What the Insolvency Service Looks for in Phoenix Companies

The Insolvency Service treats phoenix companies as a conduct matter. They look for:

• Did you comply with section 216 (trading name restrictions)?
• Were assets purchased at fair market value with independent valuation?
• Were creditors of the old company informed?
• Did you transfer employees properly under TUPE?
• Was the phoenix pre-planned before the old company entered insolvency (suggesting the insolvency was orchestrated)?
• Is this a serial pattern (multiple companies liquidated and phoenixed)?

Serial phoenixing (repeatedly liquidating companies and starting new ones to shed debts) is the pattern that attracts the most serious consequences. We have seen directors disqualified for 10+ years for repeated phoenix arrangements where creditors were systematically defrauded. A single, properly conducted phoenix after a genuine business failure is very different from a pattern of abuse.

Phoenix Companies: Steps Directors Should Take

1. Check you are not disqualified. A disqualification order prevents you from being a director of any company, or taking part in running one, unless the court gives permission.
2. Comply with section 216. Use a different name, or follow one of the three exceptions (court permission, a successor notice when the new company buys the business from the liquidator or administrator, or a name the new company already used for the 12 months before the liquidation).
3. Get an independent valuation for any assets the new company buys from the old one.
4. Document everything. The purchase agreement, the valuation, the successor notice, the TUPE transfer: all must be in writing.
5. Take tax advice if the old company was an MVL. The TAAR may reclassify your distributions.
6. Speak to a licensed insolvency practitioner. They can advise on the correct process and ensure the phoenix is structured to survive scrutiny. Company Debt is a licensed UK insolvency practice. A confidential consultation will clarify what you can and cannot do.

FAQs on Phoenix Companies