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HAE Blog; Phoenix Operations and the Legalities of Rising Again
10th February 2022

A phoenix operation is when a company is liquidated and the directors simply buy its assets cheaply, set up a new company, and continue to trade with the same or a similar name. Hiding previous failures from the public, it lets them leave creditors with nothing. As phoenix operations rise from the flames, it’s often their creditors that get burnt.

Is this legal?
Phoenix companies can be legal, but there are strict regulations to comply with, specifically, Section 216 of the Insolvency Act 1986. If this is not adhered to, those involved in the management of the phoenix company may be subject to criminal and/or civil sanctions and liabilities.

What does the law say?
When a company is placed into insolvent liquidation, Section 216 prohibits its directors from ‘involvement’ in another company with the same or similar name for five years, from the day insolvent liquidation begins. This may include existing companies/trading entities, including those that have been recently incorporated and/or commenced. The law is designed to prevent directors hiding their old company’s failure from the public. Although they can legitimately buy old company assets, they must make it clear the new business is separate from the old one.

What is 'involvement' and what’s a 'prohibited' name?
A person is considered to be’ involved’ in a phoenix company if they are: a director of a company known by a prohibited name; in any way contributing to the formation, promotion, or management of such a company, or in the carrying on of a business with a prohibited name.

A ‘prohibited’ name is one the insolvent company was known by at any time in the 12 months before it was placed into insolvent liquidation, or one so similar it suggests an association. This also applies to a company’s trading names and/or abbreviations associated with it.

There are three statutory exceptions when an individual will not be deemed to have breached Section 216, which are:

  • when (before a breach has occurred) directors who have been involved in the insolvent company give notice to its creditors that they are, or are to be, involved in a company that is acquiring the whole or substantially the whole of the insolvent company’s business from the liquidator (or administrator)
  • when the directors make a successful application to court for permission to be involved in an entity using the prohibited name; or
  • when the company with the prohibited name has been operating (and not dormant) for at least 12 months prior to the insolvent company going into liquidation

Before any of these exceptions are relied on, it’s strongly advised that those involved ensure they receive legal advice. If a person acts in breach of Section 216, they may be subject to criminal and/or civil sanctions:

  • Under criminal law, the individual is liable to imprisonment or a fine, or both if convicted
  • Under civil law the individual could be prosecuted for disqualification as a company director
  • Under civil law the individual is automatically jointly and severally liable with the new company and anyone else acting in breach of Section 216, for its ‘relevant debts’, even if it is a limited company or partnership. What constitutes ‘relevant debts’ will be fact dependant, but they will be those debts and liabilities incurred by the new company, while it’s known by the prohibited name

Accordingly, a creditor of a new company using a prohibited name can bring a civil action directly against those individuals involved in its management. They don’t need to pursue the company itself, although, if it is not in an insolvency process, it may be worth bringing an action against multiple defendants.we

Phoenix companies can offer a solution for directors and creditors of failing companies. However, they’re often administered incorrectly, leaving creditors aggrieved, and individuals unaware of the personal liability they may be exposed to. If you are a creditor of what you believe is a phoenix company, particularly one that has subsequently been placed into an insolvency process, you may wish to seek advice on the options available to you and the potential parties that you can pursue for the recovery your debt.

At Top Service Ltd as well as monitoring companies, members have the ability to monitor individual company directors. The Director Monitoring Service will advise if a director is appointed at another company or if they resign any of their directorships.

Keeping track of the individuals behind a company is often as important as monitoring the company itself. As well as providing you with an up-to-date picture of a person’s business interests it may also alert you to potential ‘phoenix companies’. A ‘phoenix company’ is one which rises from the ashes of an insolvent company, and it usually:

  • Has a similar name to the failed company
  • Carried out the same trade as the failed company
  • Trades from the same address as the failed company
  • Has the same directors as the failed company

Emma Miller, Company Director at Top Service Ltd says: “A phoenix company will typically be set up before the original company goes under. This is a common occurrence in the construction sector and is not illegal unless it can be proven that the directors deliberately defrauded creditors.”

What makes Top Service Ltd different?
As the only credit reference and debt recovery agency specific to the construction industry,Top Service makes it their mission to ensure members receive the most up to date, credit information and company trading experiences which can make a real difference between company profit and painful write-offs.

Are you struggling to recover the money you are owed?
HAE members working with Top Service Ltd have access to an exclusive combination of no collection, no fee recovery services. Contact their helpdesk team today on 01527 518800 to discuss how they can help protect your business.

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Every new year brings new year’s resolutions. You’ve probably heard the traditional resolutions from friends, family, and co-workers; get fit, eat less, save more, do more, quit a habit… etc. etc. etc.

With January over you are hopefully keeping on top of your new year’s resolutions, but what are some resolutions for your business regarding your health and safety practices that you should check?

We don't mean having to start your health and safety management program from scratch, but rather to take a fresh look at your overall health and safety practices to keep safety top of mind over the coming year. We've created a list of five checks below that you may want to consider…

1. Check your first aid kit

The BS 8599-1 standard (published in June 2011) can be used as a guide to check which type of first aid kit is necessary for your workplace. There are four sizes: small, medium, large and travel-size, although the travel-size kits are for one person only.

It's not a legal requirement to have this first aid kit, however we do feel the contents are often better suited to most businesses, compared to 'standard' first aid kits.

Here's a guide to determine which size kit is right for you.

Low Risk - Offices and shops

  • Less than 25 employees: Small
  • 25-100 employees: Medium
  • 100+ employees: Large (1 Kit per 100 employees)

High Risk - Factories, warehouses, and construction

  • Less than 5 employees: Small
  • 5-25 employees: Medium
  • 25+ employees: Large (1 Kit per 25 employees)

There is no mandatory list of items to be included in a first-aid kit, however, our suggestion for a low-risk environment would be:

  • Medium and large sterile dressings
  • Assorted plasters
  • Triangular bandages
  • Safety pins
  • Sterile eye pads
  • Disposable gloves
  • Alcohol free cleansing wipes
  • Adhesive tape
  • Gauze
  • Non-stick dressings
  • Resuscitation face shield with valve
  • Tuff cut scissors

2. Test your fire alarms and extinguishers

In addition to external fire alarm system maintenance, we encourage ALL of our clients to regularly check their fire detection system, where fitted.

Regular checks should include:

  • Make sure the power supply is in good working order - if it's battery-operated, consider replacing the batteries every few months
  • Testing (and recording) checks of the alarm on a weekly basis, we would always advise testing several call points at a time on a rolling programme and ensuring your alarm can be heard in all areas of the premises
  • Where fitted, ensure hold open devices on fire doors are operating correctly
  • If linked to an alarm centre, confirm that they have received an alarm

Finally, if anything isn't working as it should be, get it looked at.

3. Practice an evacuation drill

Fire drills are a vital part of workplace safety and essential to evaluate staff and evacuation procedures. Unfortunately, many see them as an inconvenience to the working day and they are often greeted with sighs as people slowly shuffle towards the nearest fire exit. Holding at least one fire drill annually is a legal requirement. A fire drill is simply a simulated emergency procedure to emulate the processes which would be undertaken in the event of a fire.

Each business should have 'the responsible person' who oversees fire drills and evacuations. The 'responsible person' could be the owner, line manager or member of staff who is always on-site.

Whilst there are sometimes several practical considerations, unannounced fire drills are often the most effective and those we can learn the most from.

During the drill take note of:

  • Exits  whether staff leave by the most appropriate exit
  • People - do any staff members of customers have any specific fire evacuation needs?
  • Signage - check that your fire exit signage is visible and where it needs to be
  • Belongings - do the staff stop to collect belongings from lockers and desks
  • Process - does everyone know where to go and where to assemble
  • Roll Call - do you have a printed list of staff to check off at the meeting point
  • Evacuation time - how long did it take to exit the premises

After the drill, record your findings and address any areas which need improving. Consider whether a fire safety training course would be beneficial or necessary.

4. Check Health and Safety signage

Health and safety signage provides direction about aspects of health and safety in your business and forms part of the measures to control risk in the workplace, keeping your workers safe.

The types of signage needed would cover:

  • Warnings - to indicate dangers or hazards
  • Prohibition - forbidding actions that can cause harm or increase risk
  • Safe Condition Emergency Exits - to clearly signpost escape routes, fire exits the location of first aid supplies and similar
  • Mandatory signage - signage instructing on a specific behaviour, for example, PPE signage

UK Health and Safety Law Poster - If you employ anyone, you must either display the health and safety law poster where your workers can easily read it, or provide each worker with the equivalent health and safety law leaflet.

5. If applicable, check all PPE (Personal Protective Equipment)

Employers are responsible for the provision of personal protective equipment (PPE) and its replacement when it stops affording the wearer adequate protection.

What should require PPE to be replaced?

  • The Law - some items of PPE can only be used for a set period
  • It's not working as intended - for example, filters on RPE need replacing on a regular basis
  • Wear and Tear - wear and tear will vary depending on the use, for example, a high viz vest worn in a warehouse won't need replacing as often as one worn by a labourer. As soon as an item shows signs of wear and tear, it's probably good to replace it.
  • Soiling - with every day use garments, shoes and other PPE equipment will become stained and grubby - even regular washing can fade and degrade clothing. Depending on its specific use, it's worth replacing it as soon as it's soiled in any way.
  • Physical Damage - if any PPE has any form of damage, it's quite simple, get it replaced immediately!

The team at HAE BusinessGuard are happy to assist, call on 0121 380 4612, email businessguard@hae.org.uk or visit the web-portal where you can view and download numerous guides, templates and forms (HAE member username and password is required).