July 2023 Newsletter: Out of the ashes – or back into the fire?

July 25, 2023

There is life after insolvency for some businesses – as distinct from the companies containing them – but directors continuing to trade in effectively the same way yet in a different guise must tread very carefully.

‘Phoenixing’, after the mythical bird rising from the ashes, refers to directors continuing the same business through a new company but without the debts of the former entity. Sometimes the business may even be sold as a going concern in a pre-pack administration managed by an Insolvency Practitioner. The process of ‘phoenixing’ is legal, as long as very strict rules are followed – critically, demonstrating that  creditors’ interests are maximised.

The main considerations for directors are:

  1. It must be clear that the previous company cannot be rescued.
  2. Its assets must be sold at a fair price in the interests of creditors.
  3. Proper records must be kept during the process.
  4. Directors must observe their fiduciary duties under the Companies Act.
  5. The new company must use a different name to avoid misleading customers and creditors – unless the same name is Court approved.

Unsurprisingly – and rightly – HMRC is alert to ‘phoenixing’ situations which suggest a company has been wound up to avoid paying tax. It will apply the following tests to liquidated companies to establish whether avoidance was the motivation:

  • The distributing company must, in the two years before liquidation, be a ‘close company’, i.e. have five or fewer participants.
  • Shareholders must hold a minimum of 5% equity and voting interest pre-liquidation.
  • Shareholders in the new company are seen to be involved in a similar business within a two-year period of shutting down the original company.
  • ‘Reasonable’ evidence suggests that the liquidation was prompted by a chance to pay reduced income tax.

Given the tight rules, ‘phoenixing’ understandably raises suspicions about directors who might have forced their companies into insolvency, only to then purchase back company assets through a new company and leave behind any liabilities in the old entity. Creditors, suppliers and other stakeholders immediately lose out, with no contractual claim against the new company. Unfortunately, some directors do indeed set out to commit insolvency fraud. Those wanting to stay on the right side of the law in this potential minefield should take professional insolvency advice throughout the process.

Hollywood sneezes and UK producers catch a cold

We’re told there’s no business like show business, but when things go wrong in the industry the ripple effect can be the same as in other sectors. The escalation of the Hollywood writers’ strike by the withdrawal of US actors’ participation means that even productions with finished scripts can now no longer go ahead, including on this side of the pond. The quintessentially British Doctor Who, now produced in partnership with Disney+, is likely to be delayed by strike action.

Studio film productions, dictated by long, complex schedules, will cause ripple effects to be felt by cinemas hammered not so long ago by periods of lockdown during the Covid pandemic. The surge in TV watching at that time underlined the increasing importance and value of ‘content’ – programmes, box sets and movies for both on-demand streaming businesses and terrestrial channels. The virus provided a silver lining for streamers themselves, boosted by captive audiences swelling subscriptions; however, previously booming producers of content were hit hard by the logistical challenges of filming, leaving them unable to deliver projects despite strong demand from studios and TV companies. Meanwhile, the more traditional form of screening – cinemas – was unsurprisingly battered by months on end of empty seats, set against the continued high costs of large properties.

The uncertainty over who can work, and who can and can’t cross picket lines, isn’t a long way from prompting considerable financial instability in an already fragile film and cinema sector. Downstream from writers and actors, all areas of content production and presentation face significant challenges balancing revenues and costs for the foreseeable future.



UK insolvencies

Soaring interest rates and stubborn inflation forced 2,163 businesses into insolvency in June 2023, a 27% hike on the same month last year and above pandemic levels. Most were Creditors Voluntary Liquidations (CVLs) – directors throwing in the towel  while they could still make the decision. In Q2 to June, 6,403 companies were declared insolvent,  the highest failure rate since 2009.

Compulsory liquidations rose 77% in June to 260 after a surge in winding-up petitions presented by HMRC. There were also 130 administrations, up 44% on the same month last year. Apart from the immediate problem of wrestling with high wage expectations, it shouldn’t be forgotten that a large number of businesses emerged from Covid already with too much debt. The prospect of servicing those borrowings at steeply higher rates was far from their minds, even 18 months ago.

Individuals operating close to the financial edge may face the same fate. Personal bankruptcies, at 643, were 29% higher than in June 2022.  Even though inflation may be showing signs of easing, largely driven by softer energy prices,  interest rates are set to increase at least once more. That will impact the availability of debt solution options for individuals as the wholesale price of funding these remains high and will be slow to fall when base rates eventually ease.

Expect CVLs to remain at pre-pandemic levels for the foreseeable future, while company compulsory liquidations will continue to be driven by HMRC, after an extended period of Covid-related forbearance.


Previous newsletters have examined the potential for UK manufacturing and the opportunity to reshape it for the post-Brexit era, not least with a major focus on relevant education and training. For the foreseeable future, however, statistics are pointing to the drastic need to improve the existing agreement with the EU to reduce barriers to trade.

A new report from Make UK shows that the UK’s overall share of manufacturing exports to the EU increased in 2022 to 52% from 50% in 2019. However, this was a result of sharp increases in the share of exports to the EU from Northern Ireland and Scotland over the same period, without which the overall UK share of goods exports would also be on a downward trend. Northern Ireland enjoys a unique Dual Access position retaining access to the Single Market for goods and being able to trade goods freely into the rest of Great Britain, while in Scotland the oil and gas sector and its supply chains boosted exports to the EU during the ongoing Ukraine crisis.

Purchasing managers’ figures reinforce fears that UK manufacturers are cutting production in response to a worryingly severe downturn in orders, not only from  export markets but at home too. The UK Manufacturing Purchasing Managers Index (PMI) PMI decreased to 45 points in July (against an expected 46.1) from 46.50 points in June of 2023. It was the twelfth straight month of falling factory activity and the sharpest contraction since May 2020 as output continued to decline amid lower demand and overstocking among clients. The increased complexity of the value chain means that many manufacturers will need help adapting: structurally through support for delivering the necessary skills; politically through optimising trade agreements.

The S&P Global/CIPS figure for overall PMI  showed a preliminary reading of 50.7, down from 52.8 in June in the biggest month-on-month drop in 11 months. Although above the 50-level that separates growth from contraction, it was the weakest reading since January. Put simply, Britain’s private sector is growing at its slowest pace for six months. There may yet be what Churchill called ‘sunlit uplands’, but for the time being, only dark clouds.

As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again. Our helplines below are open for free initial consultations:

Jo Milner                                 07990 816904

David Buchler                       07836 777748

Let’s get to work!


About Buchler Phillips

Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.

Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.

The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms

Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.

This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.



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