Phoenix Pre-Pack Deals Fail Again at Nearly Double the Rate

By Grace Kim

44% of "pre-pack" administration sales to connected parties — former directors and shareholders — ended in a second insolvency by July 2026, according to research commissioned by the Guardian from Turnstone Intelligence. The failure rate for pre-packs sold to unconnected buyers was 26%.

The study examined official filings for 1,738 administrations commenced in England and Wales in 2019, using AI agents to read documents submitted over the following seven years. Turnstone said that window was "long enough for creditor returns to settle and buyer failures to show." Its numbers were checked by other computer models and verified by humans.

The sweep identified 544 pre-pack sales within those 1,738 administrations. The headline finding: when the buyer knew the failed company, the business was far more likely to collapse again.

What did the study find on creditor repayments?

The numbers get worse for taxpayers. HM Revenue and Customs estimates that so-called phoenixism costs taxpayers hundreds of millions of pounds a year.

Unsecured creditors — who typically include HMRC — received any return in only 23% of connected-party pre-packs involving deferred payments. Those deals paid out just 1.58p in the pound.

When the buyer was unconnected, 36% of pre-pack administrations produced repayments, at a rate of 7.86p in the pound — roughly five times better.

Deferred payments themselves split sharply by buyer type:

• 198 of 303 connected-party administrations — 65% — let former owners and directors reacquire assets through future instalments.
• Only 28% of unconnected pre-pack buyers used deferred payments.

Ben Sims, managing director of Turnstone Intelligence, said: "What was interesting to us was the sheer scale of losses. 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."

He added: "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."

How does this fit earlier research?

The findings closely mirror two earlier reports: the University of Wolverhampton's 2014 research for the government, known as the Graham review, and a European Union-funded 2018 study. Both found poorer outcomes in connected pre-pack administrations, with the damage compounding when assets were reacquired through deferred payments.

Riz Mokal, honorary law professor at University College London and co-author of the EU study, said: "These are striking findings and are consistent with our 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."

The methodology of the new study was broadly consistent with the EU-funded work.

What do insolvency professionals say?

Phoenixism is legal. Its defenders argue the practice can deliver better returns for creditors, with experienced directors sometimes better placed than newcomers to salvage a failed company.

R3, an insolvency industry body, said the research looked only at cases pre-dating 2021 rules that "increased scrutiny of connected-party pre-pack sales and introduced additional safeguards and transparency requirements" — including mandatory clearance from independent evaluators for sales to connected parties.

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."

She added: "It's important to distinguish between phoenix activity and connected-party pre-pack administrations. Concerns about phoenixism generally relate to businesses seeking to avoid liabilities while continuing to trade through a new entity."

The study does not test whether the 2021 safeguards closed the gap. Until post-2021 data arrives, the debate over whether saving these businesses justifies the cost to taxpayers and creditors stays open.