Bust Companies Revived in Phoenix Deals Fail More Often
Companies bought back by former owners through pre-pack insolvency deals were more likely to fail again and returned less to unsecured creditors, a…
Companies in bust companies revived phoenix deals were more likely to fail again when former owners or directors bought back their assets, according to research commissioned by The Guardian. Turnstone Intelligence found that 44% of pre-pack administrations involving a connected buyer had led to another insolvency by July 2026.
The figure was 26% when an unconnected buyer acquired the assets. The findings also point to weaker returns for unsecured creditors, including HM Revenue and Customs, when former insiders took over through deferred payments.
Former owners more often paid later
Turnstone Intelligence used AI agents to examine official documents relating to more than 1,700 administrations during 2019. The research focused on insolvency proceedings in England and Wales and compared outcomes for buyers connected to the failed businesses with those who had no previous connection.
Connected buyers were more likely to defer payment for the assets. In 198 of 303 connected-party administrations, or 65%, former owners and directors were allowed to reacquire assets through future instalments. Among unconnected pre-pack buyers, 28% used deferred payments.
That difference matters for creditors seeking repayment. In pre-packs where a connected buyer deferred payment, unsecured creditors received a return in only 23% of cases. Those deals paid creditors 1.58p in the pound. When the buyer was unconnected, 36% of administrations resulted in a repayment, at 7.86p in the pound.
Ben Sims, managing director of Turnstone Intelligence, said the gap was larger than he expected. “I was surprised how big the gap remains. These results support what many in the industry have long suspected and will feed the continuing debate as to whether saving these businesses is worth the impact on taxpayers and creditors.”
Why phoenix deals face scrutiny
A pre-pack administration is arranged before insolvency proceedings begin, with a sale of the business or its assets agreed in advance. The approach can allow a company to keep operating, but critics argue that connected-party deals can let directors return with a new entity while unsecured debts remain unpaid.
The Guardian’s report describes phoenixism as the practice of liquidating a company and allowing its directors to resume business through another entity, free of debts. The cases have included owners taking dividends and loans from companies they later arrange to buy back from administrators.
The practical cost falls on creditors left behind after the sale. HMRC is often among unsecured creditors, while the study says the wider taxpayer can also bear losses. The research does not say every pre-pack has the same outcome, but its comparison shows markedly lower repayment rates when a connected party buys assets and defers payment.
“You would hope these deals would provide better outcomes to creditors, but we see them getting almost nothing. Of course, the biggest loser is often the taxpayer,” Sims said.
Riz Mokal, an honorary law professor at University College London and co-author of an EU-funded study, said the new findings were consistent with earlier research. He warned that connected-party pre-packs could allow non-viable businesses to shed unsecured liabilities and continue trading, harming creditors and competitors that keep paying their obligations.
The results also echo a government-commissioned review by the University of Wolverhampton in 2014 and a European Union-funded study published in 2018. Both reported poorer outcomes in connected pre-pack administrations, with deferred payments compounding the problem.
Turnstone said it examined filings for administrations commenced in England and Wales in 2019 because the period was “long enough for creditor returns to settle and buyer failures to show”. The study’s headline comparison: repeat insolvency affected 44% of connected-party pre-packs, against 26% of deals involving unconnected buyers.
Source: theguardian.com
