Statement of the Problem and the Need for Government Action
A phoenix company is a business that has been sold as a going concern to another company or to its directors and/or managers usually soon after its failure. Provided the business is sold at market value, the phoenix arrangement will be in the interests of creditors, including employees. However, where the sale price is less than could have been realised outside the phoenix arrangement, the legitimate interests of creditors will be compromised.
The magnitude of the problem cannot be established because there are no statistics kept on how many new companies are phoenix arrangements. However, there is a perception within the business community that the laws dealing with phoenix companies are not adequate because they are open to abuse and the penalties for contravention of these provisions are too lenient. Therefore, action is required to avoid an adverse impact on business confidence, although it is challenging to address this issue without stifling entrepreneurial spirit.
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