Phoenix companies, liquidation & insolvency
This involves selling the assets of a business individually making a profit. It usually entails taking the company’s assets that are of value as well as their funds whilst leaving behind the debts. The stripping consists of the company directors only transferring the assets of one company to another and not the liabilities. This creates an inactive company with large liabilities that can’t be met which means it has to be put into liquidation.
Stripping a company’s assets is normally done because of two main reasons. Firstly fraudsters may intentionally target a company or companies to take ownership, move to assets over and then put the stripped organisation into liquidation. The other main reason involves ‘phoenixing’. This is when the company directors move the assets from one limited company to another so that the benefits of the business are secure and so they can avoid the liabilities. Generally the directors will be the same in both companies which usually arises as a way of rescuing the assets of a failing business rather than targeting a company.
Phoenix firms and asset stripping are investigated by the Financial Services Authority or by the Companies Investigation Branch.
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