Nearly half of insolvent businesses that were reacquired by their previous management through pre-pack administrations in 2019 have entered a second insolvency by July 2026, according to research commissioned by the Guardian. The study, carried out by Turnstone Intelligence using data from over 1,700 administrations in England and Wales that year, found that 44% of pre-packs where assets were bought by connected parties such as former directors and shareholders had resulted in a subsequent insolvency. By contrast, just 26% of pre-packs produced a second insolvency when the acquirer had no prior connection to the failed company.
The findings add to longstanding concerns about "phoenixism", the controversial practice of liquidating companies to allow their directors to return with a new entity free of debts. HM Revenue and Customs estimates that phoenixisms cost taxpayers hundreds of millions of pounds annually. Ben Sims, managing director of Turnstone Intelligence, said he was surprised by the gap between the two failure rates. "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," he said.
The research revealed that connected parties were far more likely to defer payments when reacquiring assets. Of 303 connected-party administrations, 65% allowed former owners and directors to reacquire assets through future instalments, compared with just 28% for unconnected pre-packs. Crucially, unsecured creditors including HMRC fared far worse in deals involving connected parties with deferred payments. These creditors received returns in only 23% of such cases, at a rate of just 1.58 pence in the pound. When buyers were unconnected, 36% of administrations resulted in repayments to unsecured creditors, at a rate of 7.86 pence in the pound.
Sims highlighted the scale of losses to creditors. "What was interesting to us was the sheer scale of losses," he said. "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." The findings mirror results from two earlier studies: research by the University of Wolverhampton for the government in 2014 and a European Union-funded study from 2018, both of which pointed to poorer outcomes in connected pre-pack administrations.
Riz Mokal, an honorary law professor at University College London who co-authored the EU study, said the new findings were striking and consistent with earlier work. "They reinforce a wider concern that connected-party pre-packs can allow non-viable 'zombie' businesses to shed their unsecured liabilities and continue trading, harming not only their creditors, including HMRC, but also competitors that continue to pay their way," Mokal said. The insolvency industry body R3 noted that the research examined cases predating 2021 rule changes that increased scrutiny of connected-party pre-pack sales and introduced additional safeguards, including requirements for independent evaluators to clear such sales.