Repeated dissolution of LTDs then restarting

[ReaderScars]

Can anyone give me a few pointers on understanding the il/legalities of repeatedly dissolving a ltd co, renaming and carrying on in the same premises, doing the same line of work on the same equipment and producing the same products please?

ie, which laws are being broken, or what is this actually called?

[Mojooo]

Phoenixing

Its it generally legal as I understand

Pretty much a whole lot of abuse goes on this way.

[ReaderScars]

Really? If so, argh.

[speedking31]

If it was illegal then no company could ever change its name.

[ReaderScars]

This relates to investment in the business and whether the business owner can and has relinquished any obligations to investors by dissolving, renaming and carrying on.

[PistonBroker]

Bit of a nightmare for the Insurance Broker as I recall.

Though I've not encountered many thankfully. I do remember an interesting conversation about a decade ago, having just convinced all the insurers to continue with the slight name change, along the lines of 'they've taken the Range Rover back so can you delete that and can you add the Maserati that's coming tomorrow?'.

[Huntsman]

Also called a pre-pack, as in a 'pre packaged adminstration', or is that something else?

[Dromedary66]

Depending on how they have taken any capital out of the previous businesses there may be potential for them to get caught up in the Targeted anti-avoidance rules brought in last year. If you suspect them of other nefarious dealings then perhaps they have got up to mischief here as well... no idea how you could go about getting that investigated tho.

https://www.gov.uk/government/publications/corpora...

[ReaderScars]

Thanks for the info Drom. Bit of a tricky situation, would have loved to be able to go in armed with something and perhaps the smell of taxman might sharpen their senses.

Any other advice welcomed.

[4x4Tyke]

It's called phoenixing and is often illegal, but the government decimated the insolvency service about 5 years ago so they rarely get investigated or prosecuted unless they are handed the evidence on a plate. If you have inside information it is definitely worth discussing with the local office.

[Alpinestars]

Huntsman said:

Also called a pre-pack, as in a 'pre packaged adminstration', or is that something else?

This is a form of restructuring, for example many Administrations following the collapse of Leham were PP sales to the secured lenders. The pre pack bit refers to a decision which is made to sell the business of a company to a buyer, who is known before an Administrator is appointed. This helps to preserve goodwill of the company, and make it remote from any bad press associated with an insolvency process.

PistonBroker said:

Bit of a nightmare for the Insurance Broker as I recall.

Though I've not encountered many thankfully. I do remember an interesting conversation about a decade ago, having just convinced all the insurers to continue with the slight name change, along the lines of 'they've taken the Range Rover back so can you delete that and can you add the Maserati that's coming tomorrow?'.

This applies largely to solvent liquidations, ie, MVLs. It's very rare for an Administration or insolvent liquidation to return assets to shareholders, as by their nature, they tend to apply to insolvent situations, and by definition, there are no distributions to shareholders in insolvent situations. The aim of the law was to stop people setting up companies, not paying ongoing dividends, and finally distributing cash by way of liquidation - ie, the distributions would be subject to the more favourable capital gains rules, rather than income.

ReaderScars said:

Can anyone give me a few pointers on understanding the il/legalities of repeatedly dissolving a ltd co, renaming and carrying on in the same premises, doing the same line of work on the same equipment and producing the same products please?

ie, which laws are being broken, or what is this actually called?

A liquidator or Administrator has responsibility to the creditors of the company. He therefore has to secure the best price for assets, whether they are sold to the Directors of the company, or a third party. Liquidators and Administrators have personal liability for not carrying out duties correctly. Therefore most of them tend to be quite cautious about anything underhand. Do you know if the liquidations were insolvent or solvent?

[48k]

As others have said it's called Phoenixing and is not illegal as long as the individuals involved are not bankrupt or disqualified. There are also some rules about how the trading name can be used and by who - details here: https://www.gov.uk/government/publications/phoenix...

You often find people get around the ownership issue by having their spouse be the director of the new company. Another trick if the business uses tangible assets like tools or equipment is to have a parent holding company which owns the assets and a second company which is the day to day trading company. The trading company can go in to liquidation and has no assets for creditors to chase as the holding company owns them and doesn't have a relationship with the creditors. A new trading company can then be started up and continue using the assets from the parent holding company.

[OddCat]

ReaderScars said:

This relates to investment in the business and whether the business owner can and has relinquished any obligations to investors by dissolving, renaming and carrying on.

There is a big difference between being an 'investor' in the business and being a 'creditor' of the business. I have massive sympathy for the latter but little for the former. If you have invested in a business, and have a shareholding, then you should be keeping tabs on the activities of the employees / directors.

Surely, normally "phoenixing" is done by the owners to protect their investment (to the detriment if creditors who get shafted) ? Otherwise is pointless ? Unusual for an investor to get shafted ?

[Derek Smith]

I went on a business management course and one of the instructors 'admitted', or rather boasted, that he'd been the boss of a number of companies that had gone bust. Questions about supplier's costs were largely diverted to a warning to us not to wit too long for payment.

[Alpinestars]

OddCat said:

ReaderScars said:

This relates to investment in the business and whether the business owner can and has relinquished any obligations to investors by dissolving, renaming and carrying on.

There is a big difference between being an 'investor' in the business and being a 'creditor' of the business. I have massive sympathy for the latter but little for the former. If you have invested in a business, and have a shareholding, then you should be keeping tabs on the activities of the employees / directors.

Surely, normally "phoenixing" is done by the owners to protect their investment (to the detriment if creditors who get shafted) ? Otherwise is pointless ? Unusual for an investor to get shafted ?

It's illegal to shaft creditors by diverting assets to investors. There's a strict funds waterfall in administrations and liquidations.

[ReaderScars]

I'll update the thread when/if I hear back from the business owner - I did want to go into a conversation somewhat prepared but let's see what comes back before the next step is planned.

Thanks for the info so far but I should be clear about the sequence of events, ie registrations, dissolutions etc before asking for pointers. Once I'm clear about the owner's position, I'll update accordingly.

[The Wookie]

Dromedary66 said:

Depending on how they have taken any capital out of the previous businesses there may be potential for them to get caught up in the Targeted anti-avoidance rules brought in last year. If you suspect them of other nefarious dealings then perhaps they have got up to mischief here as well... no idea how you could go about getting that investigated tho.

https://www.gov.uk/government/publications/corpora...

If you're so inclined then get an investigatory business to put the case together to then hand it to the fraud office on a plate

[OddCat]

Alpinestars said:

It's illegal to shaft creditors by diverting assets to investors. There's a strict funds waterfall in administrations and liquidations.

Technically true. But the whole point of phoenixing is for the business owners to escape the liabilities but retain the assets / intrinsic value. Creditors get shafted but the law isn't broken. It is a disgrace - and very, very, rarely totally above board.....

[Alpinestars]

OddCat said:

Alpinestars said:

It's illegal to shaft creditors by diverting assets to investors. There's a strict funds waterfall in administrations and liquidations.

Technically true. But the whole point of phoenixing is for the business owners to escape the liabilities but retain the assets / intrinsic value. Creditors get shafted but the law isn't broken. It is a disgrace - and very, very, rarely totally above board.....

It's pretty easy for creditors to sue the liquidator/administrator if they think that's the case. Very few professionals would take a risk of a personal liability.

More likely, is that the owners pay the best price for the assets. Perhaps because they are not worth much to anyone else.

[Red Devil]

48k said:

You often find people get around the ownership issue by having their spouse be the director of the new company.

If there is sufficient evidence that the individual concerned is acting as a shadow director that little scam could unravel.