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What is Phoenixing?

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As the Financial Conduct Authority (FCA) announced that it is currently investigating 136 firms for potentially ‘phoenixing’, we take a look at what the term means, and the consequences the practice can have on mis-selling victims.

What is phoenixing?

Phoenixing is when a company becomes insolvent, and a new one is formed in its place. Operations move to the newly formed company but any debts and legal issues are left behind.

Why does it happen?

This is done so that a company has a clean slate. If a firm is undergoing legal or financial trouble, phoenixing allows the new company to become a new entity, disconnecting it from the troubles of the company that once existed.

Is it illegal?

While setting up a new company is completely legal, there are certain legal conditions in place to avoid the possibility of phoenixing.

Insolvency: Companies can fail for a variety of reasons with no individuals at fault. As long as the directors are not bankrupt or disqualified, they can set up a similar business to continue operations.

Liquidation: If a company is placed into liquidation, restrictions are placed on the directors and operations. If a person was the director of a company within 12 months of it going into liquidation, they are banned from acting as a company director or managing a company with similar name or operations for five years.

What does it mean for mis-selling victims?

If you’ve placed a complaint against a mis-selling company, phoenixing is incredibly frustrating.

It is up to the FCA to investigate firms accused of mis-selling, but once a company is dissolved, even when replaced with another, it technically no longer exists.

Read more: What happens if my SIPP provider goes bust?

To combat this, the FCA, alongside the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS) set up an anti-phoenixing taskforce last year to improve communication on potential phoenixing cases from companies looking for authorisation.

This will ensure that companies take more responsibility for any liabilities they are attempting to avoid.

Did the company that mis-sold to you fall into liquidation? Get in touch to talk to our experts about getting your pension pot back.