What Is a Phoenix Company?

A phoenix company is a new business that rises from the ashes of a failed one, often bought out of liquidation or administration by its former directors. Phoenix companies are entirely legal in the UK, provided they follow proper insolvency procedures with an independent valuation of assets. The controversy, and the law, centres on one specific issue: reusing the old company’s name.

Section 216: The Rule Against Prohibited Names

Section 216 of the Insolvency Act 1986 restricts a director, or shadow director, of a company that has gone into insolvent liquidation from being involved with another business using a “prohibited name” for five years. A prohibited name means:

• The same name the liquidated company used at any time in the 12 months before liquidation, or
• A name so similar that customers, suppliers, or professional contacts would likely assume the businesses are linked.

This restriction covers more than the name registered at Companies House. It also extends to trading names and logos, so a cosmetic rebrand that still looks and sounds like the old company will not get around the rule.

The Penalties for Breaching Section 216

Breaching Section 216 is a criminal offence. A director found in breach can face up to two years in prison, a fine, or both. Courts have no discretion here. Case law confirms the restriction applies even where a director had no intention of misleading anyone, so genuine ignorance of the rule is not a defence.

Section 217 goes further, making the director personally liable for all the debts and liabilities the new company incurs while they were involved in breach of Section 216. This can also catch anyone else who knowingly acts on the instructions of a director in breach, extending personal liability beyond just the director themselves.

The Three Exceptions That Let You Reuse a Name

Section 216 is not an absolute ban. The Insolvency Rules 2016 set out three excepted cases where a director can lawfully be involved with a business using what would otherwise be a prohibited name.

1. Buying the business through an insolvency practitioner, with notice

If the new company acquires the whole, or substantially the whole, of the old company’s business through arrangements made by the liquidator or administrator, the director can give formal notice under the Rules. This notice must go to the London Gazette within 28 days of completing the purchase, and to every creditor of the old company.

2. Court permission

A director can apply to the court for permission to act, even where a prohibited name would otherwise apply. The court has discretion here and will look at the specific circumstances, including whether creditors would genuinely be disadvantaged.

3. The company has already been known by the name for the required period

Where the successor company has already been using the name openly for a set period before the liquidation, without it being newly adopted to exploit the old company’s goodwill, a narrower exception can apply.

What Else Follows a Director Into a Phoenix Company

Reusing a name is not the only issue directors face when starting again after liquidation. Personal guarantees given to lenders for the old company’s debts do not disappear simply because the company has gone into liquidation. An overdrawn director’s loan account remains a genuine debt owed to the old company, which the liquidator will pursue. HMRC may also require an upfront security deposit before issuing a new VAT registration to a phoenix company, given the perceived higher risk.

Why Insolvency Practitioners Scrutinise Phoenix Deals Closely

A liquidator has a legal duty to maximise the return to creditors. Before agreeing to sell a failed company’s assets back to its own directors, the liquidator must be satisfied the price reflects genuine, independent market value, not a discounted insider deal. Directors cannot simply close a company, buy its assets back cheaply, and start again under a new name with a clean slate. Expect the liquidator to ask detailed questions, and expect creditors to scrutinise the transaction if it looks favourable to the departing directors.

Frequently Asked Questions

Can I start a new company after my old one is liquidated?

Yes, there is no general restriction on starting a new company. The restriction under Section 216 applies specifically to reusing a prohibited name, not to starting a new business under a genuinely different name.

What counts as a similar name under Section 216?

Any name close enough that customers, suppliers, or professional contacts would reasonably assume the new business is connected to the failed one. This includes trading names and logos, not just the registered company name.

Can I get permission to reuse a prohibited name?

Yes, through one of the three statutory exceptions, most commonly by giving formal notice after buying the business through the liquidator, or by applying to the court for permission.

What happens if I breach Section 216 without realising it?

The restriction applies regardless of intent. Courts have confirmed there is no defence of innocent breach, which makes getting advice before reusing any similar name essential, not optional.

Getting Legal Advice

If you are considering buying assets out of a liquidation, or starting a new business after a company failure, get advice before you settle on a name or a trading style. Our guides to MVL vs CVL and director disqualification cover related risks directors face during and after a company’s insolvency.

This article gives general information only. It does not constitute legal advice. Section 216 carries criminal penalties with no defence of innocent breach, so always get advice from a solicitor or licensed insolvency practitioner before reusing any name connected to a liquidated company.