Businesses Revived in Pre-Pack Deals Fail Again More Often, Study Finds

Insolvent companies reacquired by their previous management through "pre-pack" administrations are much more likely to fail again and tend to repay far less to creditors, according to research carried out for the Guardian.

The study adds to scrutiny of "phoenixism", the controversial practice of liquidating a company so that its directors can return with a new entity free of its debts. The process usually relies on pre-pack administrations, in which a supposed rescue is agreed before insolvency proceedings begin. Such deals often leave unsecured creditors with heavy losses, and HM Revenue and Customs estimates that phoenixism costs taxpayers hundreds of millions of pounds a year.

The Guardian commissioned the work from Turnstone Intelligence, which used AI agents to read official documents covering more than 1,700 administrations begun in 2019. Its sweep identified 544 pre-pack sales among 1,738 administrations in England and Wales, with the figures checked by other computer models and verified by humans. Turnstone said the seven-year window was long enough for creditor returns to settle and for buyer failures to show.

Outcomes differed sharply depending on who bought the assets. By July 2026, 44% of pre-packs sold to a connected party, such as a former director or shareholder, had led to a second insolvency. Where the buyer had no connection to the failed company, the figure was 26%.

Connected parties were also far more likely to be allowed to pay in instalments. In 198 of 303 connected-party administrations, or 65%, former owners and directors reacquired the assets through future payments, compared with 28% of unconnected buyers. Unsecured creditors, who typically include HMRC, received something in only 23% of the deferred-payment deals with connected parties, and those paid just 1.58p in the pound. With unconnected buyers, 36% of pre-packs returned money to those creditors, at 7.86p in the pound.

Ben Sims, managing director of Turnstone Intelligence, said he was surprised by how large the gap remains. "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 results appear to closely mirror two well-known earlier reports: a 2014 University of Wolverhampton review for the government, known as the Graham review, and a European Union-funded study from 2018. Both found poorer outcomes in connected pre-pack administrations, particularly where assets were reacquired through deferred payments.

Riz Mokal, an honorary law professor at University College London who co-authored the EU study, called the findings "striking" and consistent with that earlier work. He said they reinforce concern that connected-party pre-packs can let non-viable "zombie" businesses shed unsecured liabilities and keep trading, harming creditors including HMRC as well as competitors that continue to pay their way.

Phoenixism is legal, and its defenders argue it can deliver better returns for creditors, since experienced directors are sometimes better placed than newcomers to salvage a failed company. R3, an insolvency industry body, noted that the research covers only cases before 2021 rules that increased scrutiny of connected-party pre-pack sales and added safeguards and transparency requirements, including independent evaluators clearing such sales.

R3 chief executive Caroline Sumner said a connected-party pre-pack sale is a legitimate and regulated process overseen by licensed insolvency practitioners, whose duty is to achieve the best overall outcome for creditors. She added that it is important to distinguish phoenix activity, which generally concerns avoiding liabilities while trading on through a new entity, from connected-party pre-pack administrations.