Wbg warns directors against repercussions of illegal ‘phoenixing’
Wbg, one of Scotland’s leading independent specialist accounting, tax, and audit firms, has warned directors against the repercussions of failing to deal with failing companies in the proper manner and illegal ‘phoenixing’.
The caution follows reports that a Scottish company director used a ‘corporate rescue’ process to shut down his winter sports business and dodge paying out money to staff by paying bogus directors to take the place of the former directors whose companies had built up big debts to HM Revenue & Customs and others, leading to the Insolvency Service taking action to shut it down.
It is alleged these directors made no efforts to save stricken companies, instead leaving them to be dissolved. In many cases, directors reportedly ‘phoenixed’ companies, carrying on their business with a brand new, debt-free firm.
Craig Allison, associate director in Wbg’s insolvency team, advised that the replacement of a former company director with a new director does not automatically mean that the former director cannot be held accountable for their actions within their former role.
“If the company ends up in liquidation their conduct can be investigated by a liquidator and reported to the Insolvency Service,” he said.
“If the Insolvency Service is satisfied that there has been misconduct on the director’s part, it has powers to disqualify individuals from acting as directors and issue compensation orders.
“Simply abandoning a company with mounting debts is likely to be looked upon dimly by the Insolvency Service.”
With regard to ‘pheonixing’, Mr Allison says that while there’s nothing to stop directors from setting up a new company and trading in a similar way, there are restrictions around forming a new company and re-using the same name if the former company subsequently ends up in an insolvency procedure, such as liquidation.
“If a director sets up a new company under the same name as a previous entity, they could be in breach of Section 216 of the Insolvency Act,” he said.
“The director can not only be made personally liable for the existing company’s debt but could end up with a two-year imprisonment and/or a fine.”
Mr Allison advises any company director considering using a ’corporate rescue’ scheme to seek advice from a qualified Insolvency Practitioner.
“If it sounds too good to be true, it probably is,” he cautioned.
“Make sure that the person you are dealing with is professionally qualified and from a reputable firm.”