Government steps up crackdown on rogue directors
The Government has announced a significant crackdown on directors who misuse insolvency procedures, launching a dedicated Abusive Phoenixism Taskforce to investigate companies suspected of deliberately avoiding debts and tax liabilities through repeat insolvencies.
Backed by £25 million of funding over the next five years, the new 50-person team within the Insolvency Service will investigate suspicious company failures and target directors who dissolve businesses to evade liabilities before continuing to trade through a new company. The Government also intends to amend the Company Directors Disqualification Act 1986, making it easier to disqualify directors found to have abused the insolvency regime. The move follows estimates from HM Revenue & Customs that abusive phoenixism accounted for 22% of the UK’s £3.8 billion tax losses in 2022/23—around £800 million.
What is phoenixism?
The term “phoenixism” refers to a business rising from the ashes of an insolvent company. Importantly, not every phoenix company is unlawful. UK insolvency law allows viable businesses to be restructured or sold, preserving jobs and value for creditors, where carried out transparently and in accordance with the law.
However, abusive phoenixism occurs where directors deliberately liquidate or dissolve a company to avoid paying creditors, suppliers, employees or tax liabilities before transferring the business or its assets into a new company and continuing to trade. The new taskforce has been created specifically to identify and investigate these cases.
What does this mean for company directors
The additional funding will enable investigators to make greater use of data analytics and intelligence to identify suspicious insolvencies and repeat patterns of misconduct. Directors found to have breached their duties could face (as they do already):
- Director disqualification
- Personal liability for company debts in certain circumstances
- Compensation orders
- Civil recovery action
- Criminal prosecution in the most serious cases
Leanne Schneider-Rose, Partner at Sydney Mitchell Solicitors, said:
“The Government’s additional investment sends a clear message that those who deliberately misuse the insolvency regime can expect increased scrutiny. Equally, directors facing genuine financial difficulties should not be deterred from seeking professional advice. Obtaining legal guidance at an early stage can help identify lawful restructuring options, protect the business where possible and ensure directors continue to comply with their statutory duties.
Economic pressures continue to challenge businesses across many sectors. While insolvency can sometimes be unavoidable, directors have legal duties to creditors once a company begins experiencing financial distress. Seeking professional advice early can help directors understand the options available, whether that involves restructuring, refinancing, a formal insolvency process or business rescue, while reducing the risk of personal liability.”
At Sydney Mitchell Solicitors, our Corporate Recovery and Insolvency team advises directors, shareholders, creditors, and insolvency practitioners on all aspects of business distress, restructuring and insolvency. Whether your business is experiencing financial pressure or you require advice on your duties as a director, or maybe you are facing a potential claim from the Insolvency Service or an Insolvency Practitioner, our experienced team can help you make informed decisions and protect your position.
To speak to one of our Corporate Recovery and Insolvency specialists, contact Sydney Mitchell Solicitors today.
