Phoenix from flames: one-in-20 new companies linked to failed ventures
Published 11/10/2011 | 05:00
AN analysis of liquidations has revealed that many of the bust companies show "classic phoenix traits" with "unscrupulous" directors creating new, debt-free companies out of the ashes of failed business entities.
One-in-20 companies whose demise was analysed by BusinessPro, the business monitoring agency that publishes 'Stubbs Gazette', showed phoenix traits such as common directorships and common business lines of their failed predecessors.
Phoenix companies are businesses that have been restarted in a new guise by directors or their associates who had previously wound up companies to avoid tax and other liabilities.
Publication of the pilot research, which is expected to pave the way for a larger study of phoenix entities, follows a stark warning by the Pensions Ombudsman that new businesses formed out of recent company failures are leaving a trail of unpaid taxes, bills, wages, pensions and unpaid suppliers and leaving the taxpayer to pick up the redundancy bill.
Donal Bolger, finance director of BusinessPro, said that "honest failures" are a natural part of doing business and limited liability is the building block of business.
However, the preliminary analysis had shown that there is a "significant minority" of company failures whose director or director/shareholder's actions -- before and after liquidation -- are "calculated and nefarious".
Steps used by directors to evade their responsibilities include:
•Disposing of company assets to themselves or connected parties at a preferential figure.
•Paying off personally guaranteed bank debts.
•Extending intra-company loans from the "bad" company to the "good".
"The phoenix phenomenon is, of itself, not necessarily a bad thing," said Mr Bolger.
"But a line must be drawn where the phoenix is a clear and brazen stratagem to deprive creditors."
At the end of 2010 the Revenue Commissioners was monitoring a total of 4,269 cases under its phoenix and commonality programmes.
The commonality programme scrutinises directors who hold common direct- orships where problems such as significant tax debt have arisen in one and may indicate difficulties in another.
Revenue says that the increase in the numbers of cases managed under these programmes reflects the continuing debt challenge posed by the economic and financial environment in which businesses are operating and its determination to give priority attention to the highest risk cases.
Once a suspected phoenix company is tax compliant for two years it is taken out of this monitoring programme, although any regression will result in the company being reinstated.
At the end of 2010 there were 675 cases in the phoenix monitoring programme. In 2010 Revenue wrote off €261m in fiduciary taxes, of which €150.8m related to companies that went into liquidation.