In some cases the right decision for a limited company will be to close and the directors to start up a new business even in the same trade or profession. This is known as a Phoenix.
There are two circumstances where a Phoenix may be the right option for the business:
- A business will be carrying a legacy of debt that it cannot afford to pay but it has a current and viable business going forward. A typical example may be arrears of PAYE or business rates the business has no chance of repaying in the short or medium term.
- The business needs to downsize and maybe after many years of trading the directors cannot afford the redundancy costs to reduce the size of the business.
Of course this can greatly upset the existing company’s creditors and very careful consideration needs to be taken if choosing this route.
Some key points of a phoenixing (as this process is often called) are:
- How the existing creditors will react.
- What personal guarantees will be called in?
- Will HM Revenue and Customs ask for a VAT deposit on the future business?
- How quickly can a new business be set up?
- Will the right customers follow the business as will the necessary or essential suppliers?
- Making sure employees are correctly dealt with and that TUPE does not apply – where employee rights just transfer from one business to the next.
- Does the same business name need to be used after liquidation?
- Whether a pre-pack Administration is the right way to do this instead of liquidation.