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Construction Bosses Tighten Screws on “Phoenix” Firms

Directors who fold their firms to avoid paying workers and suppliers could face hefty fines or even disqualification.

The construction industry is still reeling from Carillion’s demise back in January. Things have not exactly improved in the 7 months since, with the snowy weather back in March and the country’s thriving late payment culture chipping away at the sector’s success. Insolvencies have increased as a result, prompting directors to take advantage.

The industry’s newest issue is rogue “Phoenix firms”. This is where a company is deliberately dissolved, allowing the director to re-emerge from its ashes and dodge paying staff or creditors. Contractors have reportedly suffered the most, but the government has announced new plans to impose strict penalties on perpetrators.

The shake-up will give the Insolvency Service the power to fine or even disqualify directors who are found guilty of cheating their creditors.

This is a tougher approach than Westminster has broached previously, with many prior government-run late payment initiatives criticised for their conciliatory attitude towards big business. The government is also planning fresh measures to help firms in financial distress, providing many with “breathing space” and rescue processes to prevent insolvency from becoming terminal.

Business Minister Kelly Tolhurst said: “The UK is a great place to do business with some of the highest standards of corporate governance. That is why we are giving new powers to authorities to investigate and hold responsible directors who attempt to shy away from their responsibilities, help protect workers and small suppliers and ensure the UK remains a great place to work, invest and do business.”

Obviously, most entrepreneurs are honest. As usual, it is a minority who take advantage of gaps in the law and pose a threat to the construction sector.

It is good news that the government is pressing ahead with plans to help the construction industry. Phoenix firms are a powerful antagonist, but they are merely components of a much larger problem. While the late payment culture remains intact, they will continue to exist.

This is where credit monitoring comes into play. At the Credit Protection Association, we provide our Members with comprehensive credit monitoring services to protect their business from loss. Our credit reports, credit rating information and company databases provide thorough information on the financial viability of all customers and suppliers. Whether the business is small or large, limited or unlimited, our Members can scrutinise the credit history of every director and help to solve the “Phoenix” problem.