Definition

A phoenix firm is a surveying practice that ceases trading through an insolvent or disorderly wind-down, leaving client obligations and professional indemnity claims unresolved, before the same principals establish a new firm and continue trading as if those liabilities did not exist. The RICS Rules of Conduct (effective 2 February 2022) make clear that members' responsibilities to the public do not disappear when a company is struck off or wound up.

Why this matters for Ethics, Rules of Conduct & Professionalism

  • Clients left with unresolved claims against an insolvent predecessor firm may have no practical means of redress, directly harming the public interest that RICS exists to protect.
  • A phoenix arrangement can deprive clients of PII protection if run-off cover is not maintained after closure.
  • RICS Rule 5 (Responsibility) requires regulated firms to wind down in an orderly way; a disorderly closure that facilitates phoenixing breaches this obligation.
  • The principals of a phoenix firm remain RICS members and cannot escape regulatory accountability by closing one company and opening another.

Key principles

What makes a firm closure disorderly

An orderly closure involves giving clients adequate notice, completing or transferring outstanding instructions, returning client files and money, maintaining run-off PII, and notifying RICS of the intention to cease regulated activities. A disorderly closure fails on one or more of these counts: locking the office without notice, or allowing PII to lapse without run-off cover.

Run-off professional indemnity insurance

When a surveying firm ceases to practise, its PII does not automatically continue. RICS rules require firms to maintain run-off cover for a minimum period so that claims arising from work done before closure can still be met. Failure to arrange it is a conduct matter regardless of whether any claims subsequently arise.

Client obligations on wind-down

Outstanding instructions must be completed or transferred with the client's informed consent; client money must be returned or transferred; and client files must be held or transferred in accordance with data protection requirements. These are obligations under Rule 3 (Service) and Rule 5 (Responsibility).

RICS regulatory consequences

Members who participate in a phoenix arrangement remain subject to the Rules of Conduct and can be investigated and sanctioned regardless of whether the original firm still exists. Sanctions include suspension or expulsion. In serious cases, criminal liability may also arise under the Insolvency Act 1986 or the Fraud Act 2006.

Relevant RICS guidance and legislation

  • RICS Rules of Conduct (effective 2 February 2022) — Rule 1 (Honesty and Integrity), Rule 3 (Service) and Rule 5 (Responsibility) are all directly engaged by phoenix firm conduct.
  • RICS professional indemnity insurance requirements — set out run-off cover obligations for firms ceasing to practise.
  • Insolvency Act 1986 — creates offences of fraudulent and wrongful trading.
  • Fraud Act 2006 — relevant where clients were deceived about the firm's financial health.

Ethics and Rules of Conduct angle

Phoenix firms test Rule 1 (Honesty and Integrity) most fundamentally: closing a practice to escape liabilities and immediately reopening under a new name is deliberate dishonesty towards clients, creditors and the regulator. Rule 5 (Responsibility) requires members to act in the public interest; an orderly wind-down, however uncomfortable, is the ethical course. A phoenix closure is not.

APC-style Q&As

Q (Level 1)What is a phoenix firm in the context of RICS regulation?

A phoenix firm is a surveying practice that closes, typically leaving unresolved client obligations and creditor debts, and whose principals then open a new firm and continue trading as if the previous liabilities did not exist. RICS treats phoenixing as a conduct matter because it harms clients and the public, and is inconsistent with the honesty, integrity and responsibility required by the Rules of Conduct.

Q (Level 1)What is run-off professional indemnity insurance, and why is it required when a firm closes?

Run-off professional indemnity insurance provides cover for claims arising from work done before a firm ceased to practise, brought after the firm has closed. RICS requires firms to maintain run-off cover for a minimum period because professional liability claims can arise years after the relevant work was carried out, and clients must be able to seek redress even after the firm no longer exists as a trading entity.

Q (Level 2)What steps must a sole practitioner take to close their surveying practice in an orderly way that complies with the RICS Rules of Conduct?

An orderly wind-down requires giving clients sufficient notice; completing or transferring outstanding instructions with informed consent; returning client money and files in accordance with data protection requirements; notifying RICS of cessation; and arranging run-off PII. Failure on any point risks a finding of disorderly closure and a conduct investigation.

Q (Level 2)A surveying firm closes following financial difficulties. The principal informs you, as an employee, that client files will be transferred to a new firm he is setting up, and that you will be offered a role there. What concerns should you raise?

Client files cannot be moved without each client's informed consent. The new firm must be regulated independently, with its own PII, and cannot inherit the old firm's liabilities. I would ask whether run-off cover has been arranged, whether clients have been individually notified, and whether the arrangement has been disclosed to RICS. If the answers suggest a phoenix arrangement, I would consider whether my own participation is consistent with the Rules of Conduct and seek RICS guidance if in doubt.

Q (Level 3)You are a partner in a surveying firm experiencing serious financial difficulties. A fellow partner proposes closing the firm immediately without giving clients notice and opening a new entity the following week under a different name with the same staff and client base. How do you respond and what are the potential consequences?

(example) I would refuse to participate. An immediate closure without client notice, followed by a rapid re-opening under a new name with the same client base, is a textbook phoenix arrangement breaching Rule 1 (Honesty and Integrity) and Rule 5 (Responsibility). RICS members remain subject to the Rules of Conduct regardless of corporate form; the regulator looks at substance. Consequences include RICS disciplinary proceedings (suspension or expulsion) and potential criminal liability under the Insolvency Act 1986 or Fraud Act 2006. The correct course is to engage an insolvency practitioner, give clients proper notice, arrange run-off cover, and explore all legitimate options first.