Depending on your age, hobbies, and cultural background, you might have heard the word ‘phoenix’ in the context of Harry Potter or Kanye West. In Greek mythology, it’s a bird that bursts into flame when it dies, then gets reborn from its ashes, ensuring that it lives forever. In the business world, a phoenix is something entirely different.
There are various definitions of phoenix activity, and the crux of it is more of a legal argument than anything else. Phoenix activity is when a company deliberately closes shop to avoid creditors. Owners then use the assets from the shutdown company to restart a new, debt-free entity.
Sometimes, alleged phoenix activity is completely innocent. If your business was a partnership and you had to shut down, it’s only natural that one partner might use the networks, contacts, and property of the dead business to start over. This is especially true in niche industries.
If for example, you’re trained medic, you may not know how to do any other kind of work. So if you own a clinic or pharmacy and it collapses, you will take the instruments and medications and begin again on new premises. You will probably use the same sources to fill your stores, and you’re likely to have the same customers.
Of course, this scenario only applies if the business failed for genuine reasons. This would mean the partners still have a healthy relationship with their suppliers, so they can still work with them. But sometimes, partners shut down a business and declare bankruptcy for fraudulent reasons. They do it to avoid tax obligations or elude a debt collection agency.
The danger with phoenix behaviour is that it casts doubt on genuine business failures. Statistics suggest that many start-ups collapse and that it takes a successful enterprise five years to break even. Due to the unscrupulous practices of Phoenix businesses, your failed venture may be eyed suspiciously.
Usually, when things start to go bad, a business offloads its assets to pay the people it owes. Selling assets off doesn’t always earn enough to settle debts. If the company was limited, its owners can fold and walk away, and creditors will have no legal way to regain their cash. Most of the time, debt collectors are called in before this happens.
Here at Boston Commercial Services, we specialise in recovering debt. If you consult us early enough, we can approach your debtors before they can initiate activities that suggest Phoenix-based solutions. We have an experienced legal team that can handle the legal aspects, should the need arise. Leave it in our hands, and we’ll do our best to recover your money.
For assistance in reclaiming your debts, call Boston Commercials on 1300 668 699. Boston Commercial provides debt collection service in Sydney, Melbourne and Brisbane.