Phoenixing is the term given to a Company that ceases to trade one day and then a new Company opens up, with similar name and same staff; premises etc. The assets of the former Company are moved to the new body but the liabilites are left behind/
The Financial Services Authority is determined to stop Phoenix Firms operating in the Regulated Sector. The FSA has stated that there are a number of measures that they can take including:
- Requiring the Directors to sign a personal guarentee to honour the liabilites in relation to any customer claims on their previous business.
- Encourage Firms to ring fence funds to be held by the departing Firm to meet potential liabilites and also take out "run-off" PI cover.
- Refuse an application for authorisation of phoenix firms where the directors of the departing companies refuse to make any reasonable arrangements for claims arising from their previous activities.
- Where customers have been actively disadvantaged then refer individuals to the Enforcement team - It should be noted that any individual that is in a controlled function may be subject to enforcement action even if they are no longer involved in FSA Regulated activities.
The FSA are encouraging "whistle blowing" to identify potential phoenix situations.
