Rising from the Ashes: The Legal and Regulatory Response to Abusive Phoenix Arrangements

Dispute Resolution

Civil Fraud & Asset Recovery

Restructuring & Insolvency

Introduction

Phoenixism refers to the practice of winding up or closing an insolvent company, only to establish a new company that continues what is substantially the same business. The new entity is often ultimately controlled by the same individuals, and the arrangement is typically designed to shed liabilities (such as debts owed to creditors or HMRC) whilst transferring the commercial value of the original business. The Government’s Fraud Strategy for 2026 to 2029, which we have reported on here[LC1] , identifies this as a particular priority area.

The Scale of the Problem

Some restructurings are entirely legitimate responses to commercial difficulties. It is also entirely commonplace for directors or shareholders to continue to operate in the same sector despite earlier failed ventures, particularly where a sector is relatively narrow or specialist. Where phoenixism becomes apparent is where the true purpose is to escape debts and other liabilities, leaving creditors out of pocket.

While phoenixism is difficult to precisely quantify, the scale of the problem appears to be significant and growing. According to HMRC’s annual report and accounts for 2024 to 2025, losses to the Exchequer from phoenixism were approximately £836 million in 2022 to 2023 (representing 22% of total tax losses) which is around 45% higher than previous estimates from that time. The true figure may be higher still, given the inherent difficulty in tracing and evidencing phoenix behaviour. Meanwhile, only 7 directors were disqualified specifically for phoenixism (out of 6,274 total disqualifications) between 2018 to 2019 and 2024 to 2025.

The issue has received renewed attention in recent months. More recently, the Atherton scheme brought the issue into sharper public focus. The Atherton Scheme involved financially distressed companies paying a fee to Atherton Corporate Partners LLP and associated companies, selling their company for a nominal sum (often as little as £1), and effectively abandoning it, with Atherton installing substitute directors who made no attempt to trade, recover debts, or protect creditors. The Insolvency Service has accused the scheme of deliberately undermining the insolvency system through false promises to directors, and has wound up several Atherton companies, with the scheme leaving thousands of creditors out of pocket in respect of debts amounting to tens of millions of pounds. A number of companies have been shut down due to their involvement in the scheme, and associated directors have been disqualified for up to seven years.

The Regulatory Response: What Is Changing?

The Government’s Fraud Strategy for 2026 to 2029 recognises that one of the difficulties with the current regime is that it typically operates after the damage has been done, and enforcement can be slow and costly, In many cases, by the time a phoenix arrangement is identified, the assets have already been dissipated and creditors have limited practical recourse. The challenge, therefore, is not simply one of legal powers, but of early detection and coordinated enforcement by the regulatory bodies.

The Government has now signalled a more proactive approach by enhancing data sharing between Companies House, HMRC, the Insolvency Service and insolvency practitioners. The aim is to enable earlier identification of suspicious patterns (such as repeat registered addresses, linked directors or recurring insolvencies) before creditors suffer significant losses. In November 2025, the government also announced it would be investing £25 million over five years to set up a new Abusive Phoenixism Taskforce, staffed by 50 people to investigate suspicious company insolvencies.

Recent reforms to Companies House, introduced under the Economic Crime and Corporate Transparency Act 2023, are also expected to play a role. The new identity verification requirements and enhanced powers to query and remove inaccurate information should make it harder for repeat offenders to operate anonymously across multiple corporate vehicles.

Practical Implications

For creditors, phoenixism remains a frustrating reality. However, there are practical steps that may help to mitigate exposure:

Due diligence on counterparties: before extending significant credit, businesses should conduct due diligence on the directors and corporate history of their counterparties. Companies House records can reveal warning signs such as prior insolvencies, disqualified directors or patterns of short-lived companies.
Prompt action in insolvency: creditors who suspect phoenix activity should promptly seek legal advice and engage early with the appointed insolvency practitioner and, where appropriate, report concerns to the Insolvency Service. Timely action may improve the prospects of recovery and support enforcement efforts.
Contractual protections: where possible, suppliers and lenders may wish to include contractual provisions for personal guarantees or enhanced termination rights in the event of insolvency.
Awareness of director conduct: directors of companies in financial difficulty should be mindful of their duties under the Companies Act 2006 and the Insolvency Act 1986, and should seek independent legal advice. Conduct that facilitates a phoenix arrangement (such as transferring assets at an undervalue or continuing to trade whilst insolvent) may attract personal liability and disqualification.

Conclusion

Corporate restructuring in financially difficult circumstances is entirely typical. However, bad faith actors are still prevalent and phoenixism represents a persistent challenge for creditors and regulators. Whilst the existing legal framework provides some remedies, enforcement remains reactive and resource constrained. The Government’s renewed focus on data sharing, early detection and enhanced corporate transparency is a welcome development, but it remains to be seen how effectively these measures will be implemented in practice.

In the meantime, creditors and businesses would be well advised to exercise appropriate caution when dealing with unfamiliar counterparties, to act promptly where phoenix activity is suspected, and to seek legal advice where significant sums are at stake. Directors, for their part, should ensure they understand the boundaries between legitimate restructuring and conduct that may attract personal liability.