Action needed against ‘phoenix’ companies

The FPB is asking for the Office of Fair Trading, which has launched an investigation into the high cost of corporate insolvency in the UK, to also consider the impact that ‘phoenix’ companies are having on small- and medium-sized enterprises.

The label ‘phoenix’ is given to companies that file for corporate insolvency and then resume trading under a different name, often with the same directors in the same area. While it is legal to form a new company from the remnants of a failing one, unsecured creditors frequently do not receive fair remuneration. ‘Pheonix’ companies are abusing the process and leaving smaller suppliers struggling, according to the FPB.

Matt Goodman, FPB policy representative, said: ‘When a business drops out of the market, banks and the government take their cut but what about the small business which has supplied that company and has never been paid?

‘Though it may be too late to help those small businesses who have been hardest hit by “phoenix” practices in this recession, surely we can use this review to help isolate and correct the problem?’

A recent survey of FPB members revealed that 23% of respondents have cash flow problems as a result of payment issues as a top concern. 42% said that they had noticed a deterioration in payments over recent months.

Dai Davies, independent MP for Blaenau Gwent, said: ‘Constituencies like mine, which have seen a huge decline in traditional jobs such as manufacturing, coal and steel, increasingly rely on family businesses and smaller employers.
 
‘These companies need cash flow yet here we have bigger businesses abusing them by building up debts then changing their names overnight and starting again. The liquidation process means the taxman gets most of the money and smaller creditors are left with nothing.
 
‘Without doubt the issues surrounding “phoenix” companies must be addressed in order to help these SMEs survive and grow.’