Run Away from Obligation – Phoenixing

I once worked for a web development agency where the Managing Director phoenixed the company. Due to the lack of creativity at the time, agencies were being set named in the form of colour + animal. In honour of this cowardly act of not paying wages or taxes, I created a small snippet which could auto-generate new agency names for anyone else who runs away from their obligations. The code is quite old, and I found it when I was archiving old data.

| 22 blue We phoenix because we don’t want to pay tax What is phoenixing you may ask – it is a controversial practice in the business world where a company, typically facing financial troubles or legal issues, orchestrates a deliberate and strategic process of closure or insolvency. The objective? To shed existing debts, liabilities, and legal obligations while essentially continuing the same business operations under a new corporate identity. This practice is frowned upon and often illegal in many jurisdictions due to its potential to defraud creditors, employees, and the government.

Imagine a scenario where a company, let’s call it “ABC Construction Ltd,” finds itself in dire financial straits. Instead of addressing its issues responsibly, ABC Construction decides to dissolve or declare bankruptcy. But that’s not the end of it; they’ll re-emerge as a new company, perhaps with a slightly tweaked name like “ABC Builders Inc.” This name change makes it challenging for creditors or authorities to connect the dots between the old and new entities.

During this process, ABC Construction may transfer valuable assets—like equipment, contracts, or intellectual property—to the new entity, often at below-market rates or without fair compensation. This leaves the old company with little to no value, making it challenging for creditors to collect what they’re owed.

Another unethical aspect involves employees. The old company may lay off its workers, failing to pay them the wages they’re owed. Then, they may rehire some of these same employees under the new company, often with worse working conditions or lower pay.

From a financial perspective, phoenixing also involves tax evasion. The old company might owe significant taxes, but it doesn’t pay them. Instead, they start afresh with a clean tax slate under the new entity, leaving the government with uncollected revenue.

Legal issues can’t be overlooked either. If a company is facing lawsuits or regulatory penalties, phoenixing can be used to evade these responsibilities. By dissolving the old company and launching a new one, they hope to escape any legal consequences.

Additionally, suppliers and creditors are often left in the lurch. The old company might owe them money, and they attempt to evade these financial obligations by declaring insolvency and reemerging as a different business entity.

What makes this practice even more concerning is that some individuals or groups engage in it repeatedly, creating a cycle of fraudulent activities designed to escape financial obligations and legal consequences.

Governments and regulatory bodies are quite critical of phoenixing due to its harmful impact on creditors, employees, and the economy. To combat this practice, many countries have established legal frameworks and regulations that aim to prevent and penalize phoenixing activities. These measures typically include stricter oversight, director disqualifications, and personal liability for company officers who engage in fraudulent practices.

In essence, phoenixing undermines trust and integrity in the corporate world. It’s essential for businesses to operate ethically and within the bounds of the law to maintain a healthy and reliable business environment for everyone involved.