Generally speaking the people most interested in acquiring the assets of a small to medium size business that has gone bust are its current owners – it’s their livelihoods at stake after all. It is often them that make the best offer to the liquidator/ administrator. The new emerging company, in relation to such as sale, is often referred to as a phoenix company.
When I last penned an article for this paper, it was shortly after I had been interviewed on the radio where the main question was along the lines of “what is there to prevent a director of a failed company setting up in the same line of business again?” The answer was that broadly, there is nothing to stop them (as long as they have done nothing wrong and fall foul of the Company Directors’ Disqualification Act).
There is now new legislation on the horizon that, when it is implemented, will change that answer. Over the last two or three years the term “pre pack” in relation to the sale of a business, or a large part thereof, of a company in liquidation, or administration, has come to the fore in respect of linked party sales, such as to current directors and owners. In the current political landscape moves are afoot to tighten up on this.
The new legislation (which is still being finalised) is understood as likely to commence in April 2012. It will effectively ban linked party (phoenix) sales, although there will be limited exceptions.
It is evident that there will be a significant impact on SME businesses that run into financial trouble. The legislation as it stands looks like it will bring more clarity to creditors, but it will be more difficult for an owner to buy back a business, which could well lead to more business closures and break up sales. Only time will tell.
