The level of enforcement activity against directors of phoenix companies has doubled over the last year, according to law firm RPC.
The activity concerns those businesses which have gone into liquidation and then re-established unlawfully using the exact same name as before.
According to RPC, The Insolvency Service took action on 163 cases where phoenix companies used “prohibited” names (re-using the name of a recently liquidated company without court permission or notifying creditors), compared with 85 in 2011-12.
Vivien Tyrell, partner at RPC, said: ““This massive increase in enforcement activity against directors of unlawful phoenix companies shows just how many people still think they can simply offload their debts and yet carry on what is effectively the same business without anyone noticing. It’s very concerning, given that this has been an offence for more than 25 years.
“Company directors that do this are seeking to capitalise on the customer base, brand currency and goodwill of a previous business but leave behind their financial obligations, rising totally unscathed from the ashes of insolvency.
“This isn’t fair on creditors, competitors or customers, so it’s encouraging to see that breaches of the rules are being clamped down on.
“Insolvency practitioners are very alive to this issue, particularly in the wake of the financial crisis. They have developed good communication lines to report suspected breaches to the Insolvency Service, for whom targeting unlawful phoenix companies is quite an easy enforcement “win” as it’s not hard to prove that a name is being re-used unlawfully.
“Whilst the UK introduced a new insolvency regime just over ten years ago now which gives directors another chance and allows them to start out again more easily, there is always the risk that some will abuse this more permissive system.”