OFT urged to address 'phoenix companies'

The issue of companies that go bust and then re-appear under a new name leaving small creditors unpaid must be looked into by the Office of Fair Trading (OFT).

The OFT is investigating the corporate insolvency market as concerns grow in some quarters that the cost of going into administration is too high.

The Forum for Private Business (FPB), which has been called to provide submissions for the OFT's probe, said in addition to this the inquiry must look at 'phoenix' companies and those directors who abused the insolvency process.

A phoenix company exists where the assets of one limited company facing liquidation are moved to another business. In many instances some or even all of the directors remain and the new business frequently operates in the same area as its predecessor.

Matt Goodman, the FPB's policy representative, said those small businesses supplying companies which went bust but re-emerged elsewhere under a new name should be protected.

While forming a new company is not illegal, Goodman said unsecured creditors often lost out, especially when assets were transferred to a new entity at less than the market value before an insolvency process began, thus reducing funds available to creditors.

An early day motion put down by independent MP Dai Davies calls on the government to review the UK's insolvency laws and to date has been signed by more than 30 MPs.

In recent years a number of pub companies have gone into administration and straight back out again under terms of 'pre-pack' deals, including Laurel Pub Company and Orchid Group.