Study finds phoenix company revival deals more likely to fail and hurt creditors

Connected-party pre-pack administrations show 44% second-insolvency rate and far lower returns to unsecured creditors

By LineZotpaper AI staff

Published25 October 2026

Updated25 October 2026

Read Time3 min

Sources3 outlets

Insolvent businesses bought back by their former owners in pre-pack administration deals are significantly more likely to fail again and give far less money to creditors, according to research commissioned by the Guardian from Turnstone Intelligence. The study analysed more than 1,700 administrations from 2019 and found that 44 per cent of connected-party pre-packs had resulted in a second insolvency by July 2026, compared with 26 per cent where the buyer was unconnected to the original company.

The practice, known as phoenixism, allows directors to liquidate a company and then resume trading through a new entity free of old debts. HM Revenue and Customs estimates it costs taxpayers hundreds of millions of pounds a year.

The research used AI agents to read official filings for administrations begun in England and Wales in 2019, a period the company said was long enough for creditor returns and buyer failures to show. The results were checked by other computer models and verified by humans.

Connected-party buyers were far more likely to be allowed to defer payments in the transaction: 65 per cent of connected-party deals used deferred payments, compared with 28 per cent for unconnected buyers. Unsecured creditors received a return in only 23 per cent of connected-party pre-packs with deferred payments, at an average of 1.58 pence in the pound. For unconnected buyers, 36 per cent of administrations resulted in payments to these creditors, at 7.86 pence in the pound.

Ben Sims, managing director of Turnstone Intelligence, said: '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.' He added: 'Of course, the biggest loser is often the taxpayer.'

The findings echo earlier research. A 2014 government-commissioned review and an EU-funded study from 2018 both identified poorer outcomes in connected-party pre-pack administrations. Riz Mokal, honorary law professor at University College London and co-author of the EU study, described the new data as 'striking' and consistent with earlier work. He said the deals allow non-viable 'zombie' businesses to shed liabilities and harm competitors that pay their way.

Proponents of phoenixism argue it can deliver better returns for creditors, because experienced directors may be better placed to salvage a failed company than a newcomer.

R3, the insolvency industry body, said the research only covered cases that predated 2021 rule changes that increased scrutiny of connected-party pre-pack sales and introduced additional safeguards. Caroline Sumner, chief executive of R3, said: 'A connected-party pre-pack administration sale is a legitimate and regulated insolvency process overseen by licensed insolvency practitioners and subject to extensive professional and statutory requirements. The duties of an administrator in a pre-pack administration sale are to achieve the best outcome for creditors of the company overall.'

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Analysis

Why This Matters

Pre-pack phoenix deals cost the UK taxpayer hundreds of millions of pounds each year through unpaid taxes.
Unsecured creditors, including small businesses and suppliers, recover just pennies on the pound when assets return to former owners.
The persistent gap in outcomes raises questions about whether current regulation is adequate to protect creditors.

Background

Phoenixism is the practice of liquidating a troubled company and allowing its directors to continue trading through a new company free of previous debts. Pre-pack administrations, where a sale is agreed before insolvency proceedings begin, are the typical vehicle. The UK government and EU-funded studies have previously highlighted problems with connected-party pre-packs. In 2021, new rules were introduced requiring independent evaluation of such sales. The latest study, using AI to analyse 2019 administrations, adds fresh evidence that the gap remains wide.

Key Perspectives

Turnstone Intelligence (study authors): Connected-party pre-packs have a 44 per cent failure rate and repay unsecured creditors far less than unconnected sales, with the taxpayer often the biggest loser. R3 (insolvency trade body): The study only looks at pre-2021 cases and does not reflect new safeguards; connected-party pre-packs are a legitimate, regulated process aimed at the best outcome for creditors. Riz Mokal (UCL law professor): The findings reinforce concerns that connected-party deals allow non-viable businesses to shed liabilities and harm competitors that pay their way.

What to Watch

Future studies covering the period after the 2021 rules to see if the gap between connected and unconnected outcomes narrows.
Potential government or Treasury response to the new evidence, particularly around HMRC losses.
The rate of connected-party pre-packs using deferred payments, a practice linked to the worst creditor outcomes.

Sources

Bust companies revived in ‘phoenix’ deals more likely to fail again, study finds · The Guardian
Bust companies revived in ‘phoenix’ deals more likely to fail again, study finds · The Guardian
Bust companies revived in ‘phoenix’ deals more likely to fail again, study finds · The Guardian

Checked

12 claims in this story checked against 1 source: 9 supported.

Show each claim

SupportedThe headline says phoenix-company revival deals are more likely to fail and hurt creditors.UK news | The Guardian: “Insolvent businesses reacquired by their previous management in “pre-pack” administrations are much more likely to fail again and tend to repay far less to creditors, research for the Guardian suggests.”
Partly supportedThe summary gives connected-party pre-packs a 44% second-insolvency rate and says returns to unsecured creditors are far lower.UK news | The Guardian: “It found that 44% of pre-packs had resulted in a second insolvency by July 2026 when assets were bought by a connected party.”
Partly supportedThe opening says the businesses were significantly more likely to fail again and gave far less to creditors.UK news | The Guardian: “Insolvent businesses reacquired by their previous management in “pre-pack” administrations are much more likely to fail again and tend to repay far less to creditors, research for the Guardian suggests.”
SupportedConnected-party pre-packs had a 44% second-insolvency rate by July 2026, compared with 26% for unconnected buyers.UK news | The Guardian: “It found that 44% of pre-packs had resulted in a second insolvency by July 2026 when assets were bought by a connected party. Just 26% of pre-packs produced a subsequent insolvency when the acquirer was unconnected to the failed company.”
SupportedBen Sims said, “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.”UK news | The Guardian: “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.”
SupportedSims added, “Of course, the biggest loser is often the taxpayer.”UK news | The Guardian: “Of course, the biggest loser is often the taxpayer.”
SupportedConnected-party deals used deferred payments in 65% of cases, compared with 28% for unconnected buyers.UK news | The Guardian: “A total of 198 out of 303 connected-party administrations – 65% – allowed former owners and directors to reacquire the assets via future instalments. For unconnected pre-packs, 28% of buyers used deferred payments.”
SupportedFor connected-party pre-packs with deferred payments, unsecured creditors received a return in 23% of cases, averaging 1.58 pence in the pound; the corresponding unconnected-buyer figures were 36% and 7.86 pence.UK news | The Guardian: “Unsecured creditors, who typically include HMRC, received a return in only 23% of pre-packs involving a connected party deferring payments, with those deals paying out just 1.58p in the pound. When the buyer was unconnected, 36% of pre-pack administrations resulted in repayments to those creditors, at a rate of 7.86p in the pound.”
Partly supportedMokal called the data “striking” and said the deals allow non-viable “zombie” businesses to shed liabilities and harm competitors that pay their way.UK news | The Guardian: “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.”
SupportedR3 said the research covered only cases predating 2021 rule changes that increased scrutiny and introduced safeguards.UK news | The Guardian: “R3, an insolvency industry body, said the research looked only at cases that predated 2021 rules that “increased scrutiny of connected-party pre-pack sales and introduced additional safeguards and transparency requirements”.”
SupportedCaroline Sumner said a connected-party pre-pack sale is a legitimate, regulated process overseen by licensed insolvency practitioners and subject to professional and statutory requirements.UK news | The Guardian: “A connected-party pre-pack administration sale is a legitimate and regulated insolvency process overseen by licensed insolvency practitioners and subject to extensive professional and statutory requirements.”
SupportedSumner said an administrator’s duties in a pre-pack sale are to achieve the best outcome for the company’s creditors overall.UK news | The Guardian: “The duties of an administrator in a pre-pack administration sale are to achieve the best outcome for creditors of the company overall.”