Phoenix companies: buying the business back from a liquidator

What a phoenix company is

A phoenix company is a new company that carries on the business of an old one after the old one has failed, usually with the same directors, the same premises and much of the same workforce. The old company's debts stay behind in the insolvency and the new company starts without them.

The law does not forbid this. HMRC's own guidance accepts that a successor company may be an honest second attempt following the genuine failure of the first, and insolvency law provides a route for the directors to buy the business and assets from an administrator or liquidator at a proper price. What the law polices is three things: whether the price was fair to creditors, whether the new company is trading on the old company's name, and whether the exercise is being used to walk away from tax.

What follows assumes the company is already in, or heading for, a formal process. The choice between the processes is covered in our guide to the options for a company in financial difficulty.

Pre-pack sales to a connected person

A pre-pack is a sale of the company's business and assets negotiated before an administrator is appointed and completed immediately after the appointment. The buyer is often the existing management acting through a new company. Its attraction is speed: the business does not sit in administration losing customers while a buyer is found, and the employees move across with their continuity intact.

Its weakness is the same thing. Creditors learn of the sale after it has happened, to a buyer they know, at a price they had no chance to test. That is why sales to connected persons carry extra rules.

The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 apply to administrations starting on or after 30 April 2021. Under regulation 3 an administrator may not make a substantial disposal of the company's business or assets to a connected person within the first eight weeks of the administration unless one of two conditions is met: the creditors have approved the disposal under regulation 4, or a qualifying report has been obtained from an evaluator. A connected person for this purpose includes the directors, shadow directors, their associates and companies they control. The eight weeks covers a sale made as one transaction or as a series.

Creditor approval is rarely sought in practice, because it takes time and a pre-pack exists to save time. The evaluator's report is the usual route.

The evaluator's report

The evaluator is an independent person engaged by the connected buyer to say whether the deal is reasonable. Under regulation 7 the report must state one of two opinions: that the evaluator is satisfied that the consideration to be provided for the property and the grounds for the substantial disposal are reasonable in the circumstances, which the regulations call a case made opinion, or that the evaluator is not so satisfied, which is a case not made opinion. The report has to give the principal reasons for the opinion and summarise the evidence relied on.

Regulation 12 deals with independence. The evaluator cannot be connected with the company or associated with the buyer, cannot have a financial or other interest likely to affect their independence, and cannot have advised on the matter in the twelve months before the report. The administrator has to be satisfied that the evaluator has the knowledge and experience to do the job, and under regulation 9 has to tell creditors about the report.

For a director planning to buy, the practical effect is that the offer has to survive scrutiny by somebody with no stake in it. That means a valuation of the assets on a proper basis, evidence that the business was marketed or an explanation of why it was not, and a price that reflects what the assets would fetch. An offer built on the assumption that nobody else will bid is the kind that produces a case not made opinion, and a case not made opinion is seen by every creditor.

The same principle applies where the seller is a liquidator. The regulations do not apply to liquidation, but a liquidator owes duties to creditors when selling assets and is personally exposed if they sell to the directors for less than a proper price, so they will want the same evidence.

The five-year ban on the old name

Section 216 of the Insolvency Act 1986 applies to anybody who was a director or shadow director of a company at any time in the twelve months before it went into insolvent liquidation. For five years from the day the liquidation began, that person may not be a director of, or be concerned in the promotion, formation or management of, any company known by a prohibited name, and may not carry on business under a prohibited name in any other form either.

A prohibited name is any name by which the old company was known in that twelve-month period, or a name so similar as to suggest an association with it. Trading names count as well as registered names. The test is association, so dropping "Limited" and adding a year in brackets does not work, and nor does keeping the brand customers know while changing the words around it.

Breach is a criminal offence, punishable by imprisonment or a fine or both. The section bites on insolvent liquidation, and a company sold through a pre-pack administration is usually placed into liquidation afterwards, so a director who bought the business through administration and kept the name is caught when the liquidation follows.

The three exceptions to the name ban

Section 216 allows a person to act with the leave of the court or in the circumstances prescribed by the rules. Part 22 of the Insolvency (England and Wales) Rules 2016 sets out three of those circumstances.

The first excepted case, rule 22.4. Where the new company acquires the whole or substantially the whole of the old company's business from its liquidator or administrator, the director can use the name provided a notice is given to every creditor of the old company and published in the Gazette no later than 28 days after the completion of the arrangements for the acquisition. The notice has to identify the prohibited name, say that the person intends to act in relation to a company using it, say that acting without this notice would be a criminal offence, and set out the person's role in the old company. This is the exception most pre-packs rely on, and because the 28 days runs from completion it has to be planned before the sale.

The second excepted case, rule 22.6. Where an application to the court for leave is made no later than seven business days after the company went into liquidation, the person may act under the name from the day of the liquidation until six weeks after it, or until the court deals with the application if that is sooner. It is a bridge to a court decision, and it requires an application to have been issued.

The third excepted case, rule 22.7. Where the successor company has itself been known by the name for the whole of the twelve months before the old company went into liquidation, and has not been dormant at any point in that period, no leave is needed. This covers a group in which two companies have always shared a name and one of them fails.

Outside these three the only route is an application to the court for leave, which the court grants or refuses on the facts. A director who has already started trading under the name while the application is pending has committed the offence unless the second excepted case covers them.

Personal liability under section 217

Section 217 turns the criminal offence into a civil one that creditors of the new company can use. A person who is involved in the management of a company in breach of section 216 is personally responsible for all the relevant debts of that company, meaning the debts incurred while they were involved in its management in breach. Liability is joint and several with the company and with anybody else liable under the section.

It reaches further than the director. Anybody involved in the management of the new company who acts, or is willing to act, on the instructions of a person they know to be in breach is personally liable in the same way, and once somebody has acted on such instructions they are presumed to be willing to go on doing so unless they prove otherwise. A spouse or a manager put in as the nominal director of the new company, taking instructions from the person the ban applies to, is exposed as fully as that person is.

The consequence is that the limited liability the new company was supposed to provide disappears for the period of the breach. A supplier who did not get paid by the new company sues the individual. There is no need to show fraud, dishonesty or that the supplier was misled by the name; the breach is enough.

HMRC security deposits and liability notices

HMRC treats a successor company as a risk until it is shown otherwise, and it has two tools that reach the directors directly.

Security deposits. HMRC may require a business to give security, as a cash deposit or a bond from an approved financial institution, where it considers there is a serious risk that VAT, PAYE or National Insurance will not be paid. Its own guidance lists phoenixism, which it describes as repeated insolvency and new company creation, as one of the risk factors. A notice of requirement states the amount and the period, which for PAYE is normally two years. Failing to give security for PAYE and National Insurance is a criminal offence with a fine of up to £5,000, and for VAT it is an offence to make any taxable supply until the security has been given, with a fine of up to £5,000 for each supply. A new company that receives a notice of requirement and carries on trading without paying it has committed an offence on every invoice.

Joint and several liability notices. Schedule 13 to the Finance Act 2020 lets HMRC make an individual personally liable for a company's tax where there is a pattern of repeated insolvency and non-payment. The conditions are that in the last five years the individual had a relevant connection to at least two old companies that went into an insolvency procedure owing tax, that a new company is carrying on the same or a similar trade to any two of them, that the individual is connected to the new company, and that the old companies' unpaid tax is more than £10,000 and more than half of what they owed to unsecured creditors in total. Where a notice is given, the individual is jointly and severally liable with the new company for its tax unpaid on the date of the notice, for any tax arising in the following five years, and for the old companies' unpaid tax. The notice carries a right to a review and an appeal. A company in a members' voluntary liquidation is not counted as an old company provided HMRC is paid in full within twelve months of the winding up starting.

What a legitimate restart looks like

The difference between a lawful restart and a phoenix in the sense the law is aimed at lies in a handful of decisions, each of which is visible to the office-holder, to creditors and to HMRC.

The business is bought at a price an independent evaluator or the liquidator can defend, with a valuation behind it. The price is paid in full, because deferred terms that never fall due are the first thing a liquidator looks for. Assets moved out of the old company before the insolvency for less than their value can be recovered under section 238 of the Insolvency Act 1986 as transactions at an undervalue, going back two years where the recipient is connected, so moving them early achieves nothing beyond creating a claim.

The name question is faced before completion. Either the business trades under a new name, or one of the three exceptions is put in place with the notice served and published inside the 28 days, or an application for leave is issued in time.

The new company is capitalised to trade. What marks a successor company out as the honest second attempt HMRC's guidance describes is that it can pay its VAT and PAYE as they fall due from the first quarter. That usually means the directors put money in at the start, because the cash flow that failed last time will fail again.

The employees are transferred properly, the creditors of the old company are told what has happened by the office-holder, and the directors cooperate with the liquidator's investigation into their conduct, which follows every insolvent liquidation. That investigation reaches the pre-pack itself, and a director who bought the business back is the first person the liquidator looks at.

Frequently asked questions

Is it legal to buy my company's business back from the liquidator?

Yes, provided the price is a proper one and the sale is handled through the office-holder. A liquidator or administrator can sell the business and assets to the former directors, and in administration a sale to a connected person in the first eight weeks needs either creditor approval or an independent evaluator's report saying the terms are reasonable. The separate question is the name: section 216 of the Insolvency Act 1986 bans the old name for five years unless one of the exceptions is used.

Can I use the same company name after liquidation?

Only if one of the exceptions applies or the court gives leave. Section 216 bans a director of a company that went into insolvent liquidation from using its name, or one similar enough to suggest an association, for five years. The most used exception is a notice to every creditor and in the Gazette no later than 28 days after the business is acquired from the liquidator or administrator. Without that, using the name is a criminal offence and makes you personally liable for the new company's debts.

What is an evaluator in a pre-pack?

An independent person engaged by the connected buyer to report on whether the price and the reasons for the sale are reasonable. The 2021 Regulations require the report before an administrator can sell to a connected person in the first eight weeks unless creditors approve. The evaluator cannot be connected with the company, cannot have an interest in the outcome, and cannot have advised on the deal in the previous twelve months. The report gives a case made or case not made opinion, and creditors see it.

What happens if I trade under a prohibited name?

Two things. It is a criminal offence under section 216, punishable by imprisonment or a fine or both. And under section 217 you become personally liable, jointly and severally with the company, for every debt the new company incurs while you are involved in managing it in breach. Anybody who manages the company on your instructions knowing of the breach is liable in the same way. Creditors of the new company can sue you directly without proving any dishonesty.

Will HMRC ask for a deposit from the new company?

It may. HMRC can require a security deposit or bond for VAT, PAYE and National Insurance where it sees a serious risk of non-payment, and its guidance lists phoenixism as a risk factor. The notice states the amount and period. Failing to give security for PAYE is an offence with a fine of up to £5,000, and for VAT it is an offence to make any taxable supply until the security is given, with a fine of up to £5,000 per supply.

Can HMRC make me personally liable for the new company's tax?

Yes, where there is a pattern. Under Schedule 13 to the Finance Act 2020, HMRC can give a joint and several liability notice where in the last five years you were connected to at least two companies that went into insolvency owing tax, a new company carries on a similar trade, and the old companies' unpaid tax is over £10,000 and over half of what they owed unsecured creditors. You then become liable for the new company's tax for five years and the old companies' unpaid tax. There is a right of review and appeal.

Sources & further reading

• Insolvency Act 1986, section 216
• Insolvency Act 1986, section 217
• Insolvency (England and Wales) Rules 2016, Part 22
• Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, regulation 3
• Finance Act 2020, Schedule 13
• HMRC: joint and several liability notices for repeated insolvency and non-payment
• HMRC Securities Guidance SG13000
• HMRC Debt Management manual DMBM522700: phoenix companies

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).