What is Company Phoenixing?

Company phoenixing, also known as phoenixing or phoenix companies, refers to the practice where a company is deliberately wound up to avoid liabilities, only for its business operations to be resumed by a new company often controlled by the same directors. While this tactic is sometimes lawful, it can have significant negative effects on employees, creditors, and employment tribunal claims. In employment matters, phoenixing can be used to avoid paying wages, redundancy, and employment tribunal awards, leaving workers in a vulnerable position.

How Phoenixing Affects Workers

When a company goes into liquidation and re-emerges under a new name, employees may find themselves:

• Unpaid for work already done

• Unable to recover redundancy payments, notice pay, or holiday pay

• Struggling to enforce tribunal awards for unfair dismissal or discrimination

• Forced to reapply for jobs with the new entity, often on worse terms

Phoenixing and Employment Tribunals

A significant challenge for workers is that once a company is liquidated, it may no longer exist as a legal entity, meaning employment tribunal claims against it cannot proceed. If the new company takes over the business but refuses to recognise previous liabilities, workers may have no immediate recourse.

However, legal remedies exist. Employees can:

1. Claim from the National Insurance Fund (NIF): If an employer becomes insolvent, employees may claim for redundancy pay, unpaid wages, and notice pay through the UK government’s Redundancy Payments Service.

2. Argue TUPE applies: If the new company is deemed a "successor" to the old one, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply, protecting workers' employment rights.

3. Lift the Corporate Veil: In some cases, courts have allowed claims against directors personally for wrongful conduct.

Legal Cases on Phoenixing and Wrongful Misappropriation

Secretary of State for Business, Energy and Industrial Strategy v Rahman & Ors [2019] EWHC 2273 (Ch)

This case involved directors who were disqualified after being found guilty of abusing the phoenixing process by liquidating their company and setting up a nearly identical business to avoid paying debts, including wages and tribunal awards.

Grays Timber Products Ltd v HMRC [2010] UKSC 4

Although a tax-related case, it demonstrated how directors can be held liable when a company is deliberately collapsed to avoid obligations.

Antuzis v DJ Houghton Catching Services Ltd [2019] EWHC 843 (QB)

In this case, directors were held personally liable for failing to pay workers, showing that courts may pierce the corporate veil when phoenixing is used to exploit employees.

Regulatory Responses to Phoenixing

The UK government has tightened regulations to address abusive phoenixing practices, including:

• The Insolvency Act 1986 (s.216 and s.217) – Restricts directors of a liquidated company from being involved in a similar-named business without court approval.

• Directors Disqualification Act 1986 – Allows the disqualification of directors who abuse phoenixing.

• Finance Act 2020 – Introduced measures to prevent tax avoidance through phoenixing, making directors personally liable in some cases.

Conclusion

Phoenixing remains a major issue for workers who lose wages and tribunal awards due to the deliberate misuse of insolvency laws. However, legal protections exist, and tribunals may still hold directors accountable. Employees affected by Phoenixing should seek legal or Union advice and explore avenues such as claims against the new company, government compensation schemes, and director liability.

As the UK government continues to crack down on this practice, workers should remain aware of their rights and challenge unfair business tactics that seek to exploit insolvency laws.