According to S&P Global, there have been at least 230 corporate bankruptcy filings thus far in 2023 (through early June). That’s more than twice the number of filings over the same period in 2022. Such growing numbers represent bad news for the companies involved, obviously, but also potentially for their vendors, customers and other business partners. Although bankruptcy can be a valid business tool, it can also enable dishonest business owners to cheat their creditors and then launch a new business. Do whatever you can to steer your business clear of these “phoenix” companies. Driven into the ground Phoenix companies earn their name because they rise from the ashes of failed companies, often trading on the goodwill of the original businesses. Here’s how a phoenix company scheme might...

Bankruptcy (or liquidation) can be a valid business tool when used properly. Unfortunately, it can also enable less-than-honest business owners to profit at the expense of their creditors. Such is often the case with “phoenix” companies. Rising from the ashes Phoenix companies earn their name because they rise from the ashes of failed companies, trading on the goodwill of the original businesses. Here’s how a phoenix company scheme might work: A company’s owner buys goods on credit, purposely drives the business into the ground and then buys its assets back from liquidators at knockdown prices. The owner then returns to the same line of business. Some operators repeat the process multiple times — as often as they can get away with it. These shady companies usually are undercapitalized...