Phoenixing

The old company is stripped of its assets and goodwill, often sold cheaply to the new one, and then left to fail with its debts unpaid. These can include tax, employee wages, supplier bills and customer claims. The new company, like the mythical bird, rises from the ashes with a clean slate. Reusing a company's assets after genuine failure is legal in many places. The abuse is in the intent and the treatment of creditors, for example selling assets below value to a connected party or repeating the cycle again and again. It is often reported in sectors such as construction, labour hire, retail and hospitality. Signs include a new company with the same owners, premises and staff, and repeated insolvencies of related firms. Many countries restrict directors who have been involved in failed firms, or can reverse transactions made below value. Creditors, employees and the tax authority absorb the loss while the owners keep trading; the legal response targets the below-value transfer and the director's repeat record.

A building contractor owes 700,000 in unpaid tax and supplier bills. He sells his equipment and contracts to a new company run by his wife for a nominal sum, and then puts the old company into liquidation. The liquidator finds the sale was below value, challenges it and refers the case to the authorities.