The FSCS has referred over 100 instances of firms phoenixing in 2019/20
Newly released figures have shown that the regulatory crackdown on the process of phoenixing is still in full flow. The data shows that the Financial Services Compensation Scheme (FSCS) has referred over 100 cases to the FCA in 2019/20.
The FSCS has stated it is making “significant progress” in clamping down on businesses attempting to dump their liabilities. They said:
Well over 100 separate cases have been identified, leading to them being referred to the FCA. At least seven firms withdrew their applications [for authorisation] after phoenixing concerns were raised with them.
[We’ve made] significant progress, with the regulators and government taking a keen interest in our results, data and experience. FSCS insights led to a number of firms withdrawing their applications following the FCA raising phoenixing concerns.
A clear case of Phoenxing
The FSCS Chairman, Marshall Bailey, also drew attention to a new trend of failed financial companies re-inventing themselves as claims management advisers – taking on claims against the sort of company they used to trade as.
One notable instance of this was the recent case of an advice firm connected to the British Steel Pensions scandal. Incredibly, a former director of Fiducia Wealth Solutions, a company which reportedly used introducers to persuade British Steel workers to transfer out of their defined benefit pension, is now trading under a different guise where he offers former clients assistance with compensation claims against financial advisers.
It has been reported by The Sunday Times that Colin Barrett-Treen was a director of Fiducia Wealth Solutions. Companies House records state that he also a director of the newly formed “Fiducia Redress Solutions”, which helps clients claim against mis-sold minibonds.
The Times reported that the FOS had received complaints against Fiducia Wealth Solutions with the firm is now being run by a “caretaker” director, Philip Stone, who is liquidating the firm.
What is Phoenixing?
Phoenixing is a process in which a company can quite literally “rise from the ashes”. An insolvent company’s assets are purchased by the company’s directors during administration. After closing the old company, they start a new business which continues to operate in exactly the same way using the purchased assets.
The result of phoenxing is that a business can resume trading as a new corporate entity with a completely clean slate, having been in administration.
Where phoenxing is deemed fraudulent is the situation where a director racks up debts, sells off the company assets to a newly formed company with the same directors, sold below market value as the company approaches insolvency, benefiting the directors and defrauding creditors.
Some directors avoid their responsibilities by continually starting new companies in this way, moving on from struggling businesses without paying their creditors.
Marshall Bailey said it was reassuring to know the FSCS’s work under the “Prevent” pillar, which includes its anti-phoenixing work, had been welcomed by members of the industry.
Mr Bailey added:
The FSCS is focused on helping facilitate good customer outcomes. We are working at pace with our colleagues to prevent further detriment. The early successes of our joint work on phoenixing has great support.
In April 2019, the Financial Services Regulatory Partners Phoenixing Group was set up by a number of regulatory bodies — including the FSCS, FCA and the Financial Ombudsman Service — to tackle the process.
How can Smooth Commercial Law help?
At Smooth Commercial Law, our team of experts have extensive experience in dealing with a whole manner of claims that arise from negligent and/or unsuitable financial advice. We are seeing more and more mis-sold financial claims, and have managed to secure compensation for many of our clients.
Should you have a claim, we can deal with your case and look to recover compensation for not just your loss of investment but also any adverse tax liabilities that you may now be facing as well.