Last Updated: 12/08/2026
What is a phoenix company?
A phoenix company is a new company that carries on the business of a failed one, usually by buying the assets from the liquidator at market value so the viable business can continue while the insolvent company is wound up. It is lawful when it is done properly and at arm’s length, and unlawful when it is used to dump debts, re-use a prohibited name or sell assets at an undervalue.
A phoenix company describes a new company that has risen again from a previously failed company. Quite often the old company will have gone into liquidation and the directors will buy back the assets and start trading again in the same business. The insolvent company is wound up and its debts stay with it, while the new company starts with a clean balance sheet.
The name comes from the idea of a business rising from the ashes of the old one. Used properly, it can give a viable business a way to continue after a one-off hit. It may upset creditors of the old business, but it is legal if done properly.
Is a phoenix company legal?
Yes, in principle. A phoenix company is legal when the failed company is dealt with through a proper insolvency process, the assets are bought at fair value, and the rules on company names and director conduct are followed. It becomes unlawful when it is used to defeat creditors, when assets are sold for less than they are worth, or when a prohibited name is re-used without following the statutory procedure.
Nothing upsets creditors quite like a phoenix company, as they think it is unfair that a business seems to have shed its liabilities and can carry on without them, particularly where the directors remain in control. The law accepts the practice but sets clear conditions around it, and a breach can carry criminal and personal liability.
What rules apply when you set up a phoenix company?
A phoenix is legal provided it meets certain conditions. Three areas matter most: the restriction on re-using the old company’s name, the requirement to buy any assets at fair value, and the duties that still sit on the directors.
Can a phoenix company use the same name as the failed company?
Not freely. Under sections 216 and 217 of the Insolvency Act 1986, anyone who was a director of the insolvent company in the 12 months before it went into insolvent liquidation is restricted, for five years, from being involved in a company that uses the same name, or a name so similar as to suggest a connection. This is known as a prohibited name.
Breaching the restriction is a criminal offence, and under section 217 the director can be made personally liable for the relevant debts of the new company. The law allows a small number of tightly defined exceptions, but using one depends on following a strict statutory procedure, and that needs legal advice before the new company starts to trade.
Do the assets have to be bought at fair value?
Yes. The assets of the old company must be valued and sold at market value, and the sale should be overseen by a licensed insolvency practitioner acting as liquidator rather than arranged in advance. An independent valuation protects the sale, because a transfer to a connected party is examined closely, and a sale at an undervalue can be challenged and unwound.
What duties do directors still have?
The directors’ duties do not end when the old company fails. The liquidator reviews the conduct of the directors and the company’s earlier transactions, including any that look like a preference or a transfer at an undervalue. Wrongful trading and misfeasance can still be pursued, and unfit conduct can lead to disqualification. A phoenix does not put the old company’s affairs beyond scrutiny. For the wider picture of what directors must do when a company is insolvent, see The Director’s Guide to Company Insolvency.
How does a phoenix company relate to a creditors' voluntary liquidation?
This is where the question usually arises. A phoenix most often follows a creditors’ voluntary liquidation (CVL), the process directors use to wind up an insolvent company they can no longer continue. In a CVL, the liquidator realises the company’s assets for its creditors. Where there is a viable business underneath the debt, the directors can buy those assets from the liquidator at market value and continue through a new company.
The CVL and the phoenix are separate steps. The liquidation deals with the insolvent company and its creditors under the supervision of a licensed insolvency practitioner; the new company is a fresh start that has to stand on its own and follow the rules above. You can read how the process works on our creditors’ voluntary liquidation page.
Phoenix company FAQs
Is it legal to start a new company after liquidation?
Yes. There is no general bar on a director forming a new company after a liquidation, and many viable businesses continue this way. The new company must respect the restriction on prohibited names, buy any assets at fair value, and meet the usual duties that apply to any director.
What are the risks for a director of a phoenix company?
The main legal risk is personal liability under section 217 if a prohibited name is re-used without following the statutory procedure, together with the risk of disqualification where conduct in the old company falls short. There are practical risks too: some suppliers will not deal with a phoenix company and may impose stricter trading terms, and HM Revenue & Customs (HMRC) may well request a bond or deposit against future PAYE or VAT liabilities.
Speak to a licensed insolvency practitioner
This page is general information, not advice for your situation. Whether a phoenix is the right step, and how to do it properly, depends on the facts of your company, so it is worth speaking to a licensed insolvency practitioner before you act. We act through licensed insolvency practitioners regulated by the ICAEW, and the earlier you take advice, the more options are likely to be open to you.
For free, confidential initial advice, call us on 0800 331 7417 or book a free 1-2-1.
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