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The problem with 'phoenix' recruitment agencies
Posted Jul 8, 2009
The Government has been asked to work with the recruitment industry to address the problem of 'phoenix' companies, where bust agencies abuse insolvency rules to shed debts and start up new companies.
What is a 'phoenix' company?
As we reported in a recent Bytestart article, a phoenix company will trade in the same industry as, and in a similar way to, its failed predecessor. The name of the phoenix will be similar to that of the failed company and so the perception will be created that it is 'business as usual'.
Companies can fail for any number of reasons and the positive benefit of a phoenix arrangement is that it allows the profitable elements of the failed business to survive, offering some continuity for both suppliers and employees.
The Enterprise Act 2002, which came into effect on 15 September 2003, sought to promote entrepreneurship and enterprise and provided support to the directors/owners of failed business ventures. This new 'rescue culture' provided the chance for businesses to start over again and enabled the profitable elements of the failed business to survive.
Need to highlight bad practice
The Recruitment and Employment Confederation (REC) has written a letter to the Department of Business, Innovation and Skills (BIS), drawing attention to this practice which has been raised by agencies during a number of recent industry events.
Commenting on the campaign to highlight this issue, Fiona Coombe, the RECs Director of Professional Services, said:
"There are occasions when it is quite legitimate for an agency that is in financial difficulty to file for insolvency. Where we have concerns are situations where this kind of 'phoenixing' is used systematically and repeatedly, often leaving individual workers out of pocket. The REC already runs Companies House checks on all new corporate members and we are committed to working with Government inspectors on this issue."
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