A phoenix company is a new company that has been registered to take over the assets – but not the liabilities – of an old insolvent company.
The transaction will not be documented (i.e. through an asset sale agreement or sale of business agreement) and it will be undertaken surreptitiously. The details of the transaction will also be concealed from creditors and a subsequently appointed liquidator. The reason why it is undertaken surreptitiously is to hide the fact that there is no commercial consideration paid for the assets acquired.
Often, the new company will be given a similar trading name to the old company, so that customers don’t realise anything has changed.
The aim of a phoenix is for a business to improve its balance sheet (by eliminating its liabilities) and to continue operating with minimal disruption.
Through these means, the business is able to ‘rise like a phoenix from the ashes’ – hence the name. Meanwhile, the old company (which retains the liabilities) is placed into liquidation so the old company will be assetless.
Phoenix activity has also been a part of organised crime and tax evasion.