Founded in Egyptian mythology, the phoenix is a Garuda in sanskrit, a chariot of the Hindu God Vishnu, and had come to represent the Christian concept of resurrection. This legendary bird that rises from the ashes is so widespread it appears in ancient Greek, Roman and Russian texts, on U.S. flags, and in company law textbooks. It is this latter bird that interests us most...
When a company enters into insolvent liquidation, its creditors (and anyone with a cause of action against the company) often lose out. Since there is no money in the pot, all ties between creditor and debtor are burnt. Following liquidation a phoenix company may arises and carry on the same business as had the insolvent company, often on the same premises and with the same or similar name (Re Linvale Ltd [1993] BCLC 654).
Stringent legislation and heavy penalties aim to protect creditors and the public from phoenix companies. Where a company enters insolvent liquidation, any director of the company (who was a director in the 12 months prior to liquidation) will commit an offence if, within five years of liquidation, he or she becomes involved either directly or indirectly in the management of a company with the same or similar name (s.216, Insolvency Act 1986). A director that is found to have committed an offence under s.216 will be personally liable for all the debts of the phoenix company (s.217). Being a director of a phoenix company may amount to misconduct under the Company Directors Disqualification Act 1986, which provides for courts to disqualify directors for up to 15 years. Contravention of a disqualification order may lead to a fine and/or imprisonment (s.13).
On 10 June 2005, the Financial Services Authority (FSA) alerted financial advisers that it would be cracking down on phoenix companies, and not tolerate firms attempting to avoid their liabilities to customers by moving assets between companies. One year later, the FSA stated in its newsletter that it had had considerable success in stamping out phoenix companies over the previous year. The FSA found that private warnings were an effective alternative to disciplinary action and that in order to keep the pressure on phoenix companies, it would further improve information sharing with the Financial Ombudsman Service and the Financial Services Compensation Scheme. The FSA also issued a fact-sheet to assist firms to avoid being construed as phoenix companies when changing their legal status.
Addendum: a theory for the origin of the phoenix legend is that ravens and crows have been observed to sit on the fading embers of a fire and spread their wings. As we enjoy a sauna or hot bath, so may crows enjoy standing on warm charcoal. If a large raven on a fading fire were to flap its wings, it could bring the fire to life again. The new flames would almost certainly cause the bird to fly off, leaving a trail of flames and embers.
Cost will likely dictate how much protection you can buy.
Posted by: alarm systems | 16 May 2011 at 10:48 AM