Ever heard of a phoenix company? Not many people have, but – according to the FSCS’ 2020-21 plan – 136 of these companies are currently being investigated by the Financial Conduct Authority (FCA). Here we take a look at exactly what the term ‘phoenixing’ means and why it’s important.
What is phoenixing?
Phoenixing is a process in which one company becomes insolvent and a new company is formed in its place. That’s how it got its name – a new company ‘rises from the ashes’ of the old one.
Essentially, it wipes the slate clean. The old company is acquired in administration or liquidation by the company’s director. All operations are moved to the new company and the business can continue to trade. It just has a new entity and any existing debts or legal issues can be left behind.
Is phoenixing legal?
Yes – nine times out of ten, it’s completely legal to set up a phoenix trading company.
Businesses can dissolve for a wide range of reasons. In most cases, it isn’t due to misconduct on the director’s behalf. So why shouldn’t they be given a second chance? UK law allows such directors – and their employees – to set up a new company and make a fresh start. The only condition is that those involved must not be personally bankrupt or disqualified.
If a company enters liquidation, the rules of ‘phoenixing’ become a little more stringent. Anyone who was a director in the 12 months before the liquidation is banned. This ban lasts for five years and covers companies that are similar (and suggest an association) with the old company.
What does phoenixing mean for those with mis-sold pensions?
Although technically legal, phoenixing is a big problem within the pensions industry.
If a firm is dissolved and replaced with another, it technically no longer exists. In the context of mis-sold pensions, firms can use this tactic to deliberately avoid their liabilities and ‘wipe away’ their poor conduct history. Such tactics can be incredibly frustrating for the consumer. It makes it much harder for the FCA to investigate the claim and the chance of compensation can be reduced.
That’s why, in April 2019, the FCA decided to take action. Alongside the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS), they set up an ‘anti-phoenixing’ task force – to help identify any phoenix companies who are seeking authorisation.
As part of this task force, all regulating bodies are encouraged to share information on FSCS claims, unpaid FOS awards, director disqualifications and more. Data analytics and machine learning are used to identify trends and pick out instances of failed firms re-emerging as a new entity. And the good news? Over the last 12 months, the scheme has already proven to be a success.
A total of 136 potential cases have now been identified and referred to the FCA. Ultimately, the goal is to ensure these companies take responsibility for their liabilities – and it certainly seems to be a step in the right direction to help combat phoenixing in the financial sector.
Did your pension firm go into liquidation?
If you think you may have been mis-sold a pension – and the firm has subsequently dissolved or gone into liquidation – there are a few different routes available for you to take.
Of course, claims can be made for free directly to the FOS, the Pensions Ombudsman (TPO), or the FSCS. If you have it, you can claim on your personal insurance for financial mis-selling. Alternatively, if you would like a little expert advice and guidance on the matter, you can recruit the help of a professional claims management company – such as Money and Me Claims.
Having been involved in the pension industry for over 10 years, our team have detailed knowledge and experience of phoenix companies and how the practice of phoenixing can be used to avoid liability. Hence this makes us well placed to advise on your eligibility to claim against such companies as well as other failing financial providers. We can take care of the entire claims process on your behalf – and will do everything within our power to get the compensation you could be owed.
We only charge our fees if you win (25% + VAT). If you decide to cancel after the 14-day cooling-off period, we simply ask for a reasonable fee to cover the work already done. But if there’s no case, or the case turns out to be unsuccessful, you don’t pay a thing. So, what do you have to lose? Take the first step today and either give us a call on 01236 607952 or fill out our online contact form.