Recruitment group emerges from insolvency again
Recent reporting has highlighted how the UK recruitment business SERT has emerged from insolvency proceedings for a third time while continuing to trade through new corporate entities.
The recruitment group, which supplies workers to sectors including construction and infrastructure, has reportedly entered insolvency on several occasions over the past decade. Each time the business has continued operating through successor companies.
The report also suggested that significant tax liabilities were left behind when earlier companies connected to the group collapsed.
Situations like this frequently attract scrutiny because they raise questions about the use of phoenix companies, where a new company continues the business of an insolvent predecessor.
What is a phoenix company?
A phoenix company generally refers to a situation where the business or assets of a failed company are transferred to a new company that continues trading.
- The practice itself is not unlawful.
- In many cases, restructuring a business through a new company can preserve jobs and maintain value that might otherwise be lost if the company simply closed.
However, phoenix arrangements can become controversial where creditors are left unpaid while the underlying business continues under a new corporate structure.
Typical areas of concern include:
- the transfer of business assets to connected parties
- the valuation of those assets
- whether the transfer process was transparent
- repeated insolvencies involving similar businesses and the same directors
When these issues arise, insolvency practitioners and regulators may examine the circumstances in more detail.
Why HMRC is often closely involved
- Recruitment companies frequently carry significant PAYE and National Insurance liabilities because of the way their payroll structures operate.
- When such companies become insolvent, HMRC is often one of the largest creditors.
Where a company collapses leaving substantial tax debts and a similar business quickly reappears under a new company structure, HMRC may investigate whether the circumstances justify further regulatory action.
Possible outcomes may include:
- investigations into director conduct
- claims pursued by liquidators or administrators
- director disqualification proceedings
Director disqualification remains a key enforcement tool where company management is considered unfit. Under the Company Directors Disqualification Act 1986, directors can be banned from acting as company directors for between two and fifteen years depending on the seriousness of the conduct.
Transactions that may be examined after insolvency
Once a company enters liquidation or administration, the insolvency practitioner appointed will investigate the company’s financial affairs.
- Particular attention is often given to transactions that took place shortly before insolvency.
- Under the Insolvency Act 1986, certain transactions can be challenged if they unfairly disadvantage creditors. These include transactions at an undervalue and preferential payments.
Where the court finds that such transactions occurred, it may order the return of assets or value to the insolvent estate for the benefit of creditors.
The risks for directors during restructuring
For directors of financially distressed businesses, cases like this underline the importance of transparency and proper process when restructuring a company.
Transferring a business to a new company may be lawful and sometimes necessary to preserve value. However, directors must ensure that:
- assets are properly valued
- the transfer process is documented and transparent
- creditor interests are taken into account
- professional advice is obtained before major decisions are taken
Decisions made during financial distress are often reviewed in detail once formal insolvency proceedings begin.
What creditors may want to consider
When a company fails and a similar business quickly reappears under a new corporate structure, creditors may wish to understand how the restructuring took place.
Important questions may include:
- whether the business or assets were sold through an independent process
- whether connected parties acquired those assets
- whether the insolvency practitioner is investigating earlier transactions
- whether any recovery claims may be pursued
In some cases such investigations can lead to claims that recover value for creditors.
The broader lesson
Repeated insolvencies involving connected companies often attract attention from creditors and regulators.
In many cases the explanation may be that a viable business has been restructured. However, where substantial debts are left behind, the circumstances may be examined more closely.
- For directors, the situation reinforces the importance of careful decision-making during financial distress.
- For creditors, it highlights the role of insolvency law in reviewing transactions and protecting creditor interests.
