At present, well over a hundred companies are being investigated by the FCA for ‘phoenixing’. But what exactly is phoenixing, and why is it so problematic?
Here’s a brief explanation of what these companies are, plus advice on what to do if you think a phoenix firm has mis-sold you a pension product.
What is phoenixing?
A phoenix company is a firm that has declared itself as insolvent, then re-established itself as an entirely new enterprise. On paper, the new company is not a continuation of the old. However, the operations and processes are usually the same, so in practice, it’s essentially an identical firm.
The company has literally ‘risen from the ashes’ – which explains the name. They’re free to trade again, and any previous legal problems or debts are dropped, along with their old identity.
Isn’t this against the law?
Technically, setting up a phoenix company is 100% legal. After all, some firms are dissolved for legitimate reasons, not because they’ve done anything wrong. Phoenixing offers business-owners the chance to start again, along with their employees – which means less unemployment in the long run.
There are also some protections in place. For example, if the old business was dissolved due to entering liquidation, then the law places a five-year ban on business-owners, preventing them from setting up a phoenix company during this time.
What’s the problem with phoenixing?
Phoenix companies create serious issues when it comes to pension products. This is demonstrated in the theoretical example below:
Company X mis-sell numerous pensions to their customers. Just as people are starting to complain to the FOS (and make claims), the company is dissolved, which means they avoid their liabilities. A while later, they’re legally able to set up a phoenix company, without any obvious repercussions.
This situation means that it’s harder for the FCA to carry out investigations into their mis-selling practices. It also makes it trickier for investors to seek compensation.
Extra protection for investors
In 2019, FCA (along with the FOS and FSCS) announced a clamp-down on phoenixing. They stated that all regulating bodies should be encouraged to inform them of any unpaid FOS and FSCS claims, plus director disqualifications. This additional information ensures that phoenix firms are identified sooner, along with any problems they might cause in the future.
The FCA are focused on not only identifying these companies but holding them to account too. If they’ve mis-sold investment products to their customers in the past, they shouldn’t be permitted to simply set up another company without any repercussions.
What to do if you’ve been mis-sold to
If you believe that a phoenix company mis-sold you a pension product, don’t panic - you can still seek compensation.
Here are some classic signs that you were a victim of pension mis-selling:
- They failed to explain the risks of the product to you
- They didn’t offer you a full range of products
- They didn’t assess your attitude to risk
- They didn’t ask you about your current financial circumstances
If you’re concerned that you’ve been a victim of pension mis-selling, Goodwin Barrett could help you claim the compensation you’re entitled to. Get in touch with the Goodwin Barrett team today on 0808 163 1659 or email firstname.lastname@example.org.