Business owners should not be allowed to walk away from their debts.

Beware phoenix firms' rip-offs

Published:  02 December, 2009

CHESHIRE: The Forum of Private Business is urging the Office of Fair Trading to include the problem of 'phoenix' companies in its investigation into the corporate insolvency market.

Phoenix companies form when the assets of a limited company facing liquidation are transferred or sold to another business under a 'pre-pack' agreement.

Concern is mounting over the effect this has on small firms that typically recover just 1% of what they are owed, according to the House of Commons Business and Enterprise Committee.

Matt Goodman, policy representative at the FPB, said: "When a business drops out of the market, banks and government take their cut, but what about the small business which has never been paid?"

Michael Haythorpe, who runs Aspect East Anglia, a roofing company with building firms, builders' merchants and private customers, estimates that in the past four years his company has lost over £100 000 because of customers entering into administration and failing to repay money.

"We and other small firms – unsecured creditors – are always the ones to suffer. We are a privately-owned business, we have no credit insurance as it is too expensive and every time a customer does this it hits us hard," he said.

"There is no way business owners should be allowed to just walk away from their debts and then begin trading again as if nothing has happened," he added.

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