Business organisation Downtown in Business has welcomed new government measures designed to protect small and medium-sized enterprises from late payments by larger corporations but is warning ministers that another damaging business practice continues to devastate SMEs across the UK.
DIB is calling for urgent action against so-called “phoenix companies” -businesses that repeatedly go into administration, leave behind huge debts to suppliers and HMRC, and then re-emerge under a different company structure with the same directors and operations.
The organisation says the practice is leaving many SMEs out of pocket by hundreds of thousands of pounds, while also depriving the Treasury of millions in unpaid taxes.
DIB Group Chair and Chief executive Frank McKenna said:
“Late payments are a serious problem for SMEs, so the government is right to strengthen protections in that area. However, for many smaller businesses, the bigger threat comes from companies who repeatedly go bust, walk away from debts, and then simply start up again the following week under a different name.
“It is completely unacceptable that some directors are able to exploit insolvency rules time and time again, leaving small businesses facing financial ruin whilst HMRC loses substantial sums in unpaid tax revenues.”
Mr McKenna said the government should now consider tougher sanctions for repeat offenders, including lengthy director bans and enhanced scrutiny of insolvency arrangements.
He added:
“Most businesses fail because markets change, mistakes are made, or economic conditions become difficult – and genuine entrepreneurs deserve support when things go wrong. But there is a world of difference between honest failure and serial abuse of the system.
“When the same individuals are involved in multiple administrations, with SMEs and taxpayers repeatedly picking up the bill, government has a responsibility to intervene.
“We need a far tougher approach, including potential director disqualifications for repeat offenders, greater transparency around phoenix activity, and stronger protections for smaller suppliers who are too often last in the queue when businesses collapse.
“SMEs are the backbone of the British economy. They create jobs, drive growth, and support local communities. They should not be treated as expendable collateral by irresponsible operators gaming the system.”
Frank McKenna has shared a dossier of evidence of companies in the DIB network who have been negatively impacted by companies taking unfair advantage of the current insolvency rules with the Department of Business and Trade, and Downtown in Business will be raising the issue with ministers, MPs, and business organisations over the coming months as part of a wider campaign to improve the operating environment for SMEs across the UK.
