Phoenix or turkey?

The so-called phoenix company has been around for as long as I can remember. We have a few on our books, in fact probably more than I realise.

Dumping the old company with all its debts may seem a very attractive proposition, but it's not without its pitfalls - the biggest of which is that a penniless company in its final throes tends not to have cash available to splash out on further professional advice.

I currently have a couple of clients who clearly should have been better advised when they tried to save their businesses by transferring them to a new company. The first is getting a lot of hassle from the liquidator of the old company because they gave very little thought to how the closing debtors, stock and work in progress of the old company would be worked out. Yes, you guessed, the new company collected the debtors and sold the stock but never accounted to the liquidator! In addition there's a long-running claim against the directors for mis-using their loan accounts in the old company. Looks like it might end up in court.

Which is exactly where my second client is heading very soon. £100,000 in legal fees later, it seems everyone is telling the directors that they are facing a substantial cost for wrongful trading in the old company - in other words, they should have pulled the plug sooner. The good news is that there are four directors, so the cost is divisible between the four of them. The bad news is that my client is the only one with any assets, so on a joint and several basis it looks like he may have to pick up the tab for everyone. Having realised this, the other directors are keen to contest the liquidators claims in court, but their solicitor is warning them that if they lose the settlement is going to be higher PLUS they will be stuck with the other party's costs, which already exceed theirs. Likely outcome: bankruptcy and homelessness for all. Equitable maybe, but it could have been avoided had they been properly advised at the outset.

Could we have helped them? Snag is, these tend to be the clients that disappear off our radar, fail to return phone calls or respond to emails, and then reappear months later having cobbled together some hare-brained scheme that sooner or later goes bad, just like these two cases. It's perhaps unsurprising that the smart ones find new accountants for the new company so they don't have to listen to us saying "we would have told you so" when it all falls apart!

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