in this Blog, our head of Tax Disputes Andy Lynch, looks at HMRC's likely approach to Phoenix companies in 2026, enforcement and personal liability.
What is a Phoenix company?
A phoenix company arises where a business fails, is placed into insolvency, and a new company emerges carrying on a similar trade, often using the same assets, customers, or trading name.
In 2026, this practice is under intense scrutiny. HM Revenue & Customs and the Insolvency Service are clearly going to be focused on distinguishing legitimate business rescue from abusive phoenixism that leaves tax and other creditors unpaid.
For directors, the consequences of getting this wrong can include personal liability, director disqualification, and claims by liquidators.
At a glance
Phoenixing is not automatically unlawful. However, where assets are transferred at undervalue, creditors are prejudiced, or directors fail to comply with statutory restrictions, enforcement action can follow quickly. Early advice is always critical where HMRC or an insolvency practitioner raises concerns.
What is phoenixism and when is a phoenix company lawful?
Phoenixism describes a situation where the business of an insolvent company is continued through a new corporate vehicle. In many cases, this is entirely lawful. A properly structured administration or pre pack sale can preserve jobs, maintain value, and deliver a better outcome for creditors than liquidation.
- Problems arise where the process lacks transparency or is designed primarily to shed liabilities.
- Transferring assets to a new company for less than market value, preferring certain creditors, or continuing to trade without addressing historic tax debts can all trigger allegations of abuse.
The key distinction is intent and process.
- A lawful phoenix involves independent valuation, proper marketing where appropriate, and a clear rationale focused on creditor outcomes.
- Abusive phoenixism typically involves connected party transactions, minimal disclosure, and poor governance.
In summary, Phoenixing can be lawful, but only where the insolvency process is used properly and creditors are treated fairly.
Why is HMRC focusing on phoenix companies in 2026?
HMRC has made phoenixism a priority enforcement issue because of the scale of tax losses involved. Public reporting in early 2026 highlighted that hundreds of millions of pounds in unpaid VAT and PAYE are attributed each year to businesses that collapse and reappear under new structures.
From HMRC’s perspective, repeated business failure followed by near identical trading activity raises obvious red flags. This is particularly so where directors remain in control, tax arrears are written off, and the new entity begins trading immediately.
This enforcement focus is supported by closer coordination between HMRC, Companies House, and the Insolvency Service. Intelligence sharing and earlier intervention mean that director conduct is being examined more closely and at an earlier stage than in previous years.
Phoenix activity now sits firmly within HMRC’s enforcement spotlight, with faster escalation and fewer warnings.
It is always important for Directors to understand their day to day duties. Our Free Director Duties Guide is an excellent place to start.
What legal risks can directors face if phoenixism is suspected?
Where phoenix behaviour is challenged, the risks for directors can extend well beyond the insolvent company.
Directors owe statutory duties under the Companies Act 2006, including duties to act in good faith, avoid conflicts of interest, and exercise reasonable care and skill. When insolvency is likely, those duties shift towards the interests of creditors.
Liquidators may bring claims for misfeasance, breach of duty, or recovery of assets under the Insolvency Act 1986. Common examples include transactions at an undervalue, preferences, and recovery of overdrawn director loan accounts.
In serious cases, directors may also face disqualification proceedings. A finding of unfit conduct can result in a ban on acting as a director or being involved in company management for up to fifteen years.
Suspected phoenixism can expose directors to personal claims, not just criticism of the failed company.
How do the Insolvency Act “prohibited name” rules affect directors after liquidation?
Sections 216 and 217 of the Insolvency Act impose strict restrictions on the reuse of a company’s name or a similar trading name following liquidation. These provisions were introduced specifically to tackle phoenix abuse.
A director of a liquidated company is generally prohibited, for five years, from being involved in a new company that uses the same or a similar name. Breaching this restriction is a criminal offence and can also result in personal liability for the new company’s debts.
There are limited exceptions, but these must be handled carefully and within strict time limits. Failure to comply can undo an otherwise lawful rescue strategy.
Reusing a company name after liquidation carries serious risk unless the statutory rules are followed precisely.
What should directors do if HMRC or an insolvency practitioner raises phoenix concerns?
The most important step is to engage early and take advice. Ignoring correspondence or assuming concerns will resolve themselves often makes matters worse.
Directors should ensure that records are complete, valuations are robust, and the rationale for any restructuring is clearly documented. Where transactions involve connected parties, scrutiny will be higher and the evidential burden greater.
Early professional advice can help manage engagement with HMRC or the Insolvency Service, assess exposure, and reduce the risk of escalation into disqualification or litigation. In many cases, prompt action can contain the issue before positions become entrenched.
Early, informed engagement can prevent phoenix concerns from becoming personal liability claims.
Practical guidance for directors and stakeholders
Phoenix companies will continue to exist because business failure does not always mean business abuse. However, the regulatory environment in 2026 leaves little margin for error.
Francis Wilks & Jones advises directors, insolvency practitioners, and creditors on phoenix company issues, director duties, HMRC enforcement, and insolvency litigation across England and Wales. Early advice can protect both the business opportunity and the individual behind it.
Contact our experts today for help
Company Rescue Team. Our expert team of company rescue lawyers has decades’ experience helping businesses of all shapes and sizes. It is highly unlikely there will be a company rescue situation we haven’t seen before in our decades of combined experience acting for companies and business owners. It is headed by Tim Francis, one of the UK’s leading company rescue lawyers with over 30 years’ experience.
Director Defence Team. Headed up by lawyer and ex accountant, Stephen Downie, we are nonowner for defending directors from HMRC claims, claims by liquidators and director disqualification claims.
Tax dispute team. Our team of tax experts led Andy Lynch, with 18 years experience working at HMRC’s National Investigations Team to draw on. Don’t settle for second best. Call us today.
