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New route forward for developers: go bust and emerge stronger

By on January 23, 2009

Jonathan Guthrie wrote in the Financial Times earlier this week about phoenix companies.

Phoenix companies take advantage of UK insolvency laws by doing pre-pack deals with administrators. The directors realise that the company is insolvent and have no choice but to appoint an administrator. The directors then form a new company and do a deal with the administrator to buy the assets of the old one, often within hours of the administration. The administrator then has some (but usually not very much) money to pay the creditors of the old company, while the new company (which usually has the same directors, employees, assets and contracts as the old one) is free to continue its business, unencumbered by its debts.

There is a logic to the existence of the “pre-pack” model. It protects jobs. Often the only potential buyers of a business are the pople who know it well (i.e. the former directors). It allows businesses that have got into short-term operational difficulties a lease of life. It can help companies whose difficulties stem from problems at their parent company (I wonder if this is what happened when Blimey! Games emerged as Slightly Mad Studios earlier this month)

But it does it at the expense of creditors. The taxman (I can live with that), suppliers and partners. Some commentators call it “immoral”.

Nevertheless, I expect to see a lot more phoenixes in the games industry this year.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: