Insolvent companies that are bought back by their previous leadership through pre-pack administration are significantly more likely to collapse a second time, according to recent research. The study, commissioned from Turnstone Intelligence, provides new evidence regarding the controversial practice known as “phoenixism,” where directors liquidate a struggling business only to return with a new, debt-free entity. The boss whose twice-bust business appears to be back.
Using AI-driven analysis to review over 1,700 insolvency cases from 2019, the researchers examined the outcomes of 544 pre-pack sales. The data revealed that 44% of businesses reacquired by “connected parties”—such as original shareholders or former directors—entered insolvency again by July 2026. In contrast, only 26% of firms failed again when the buyer had no prior connection to the original entity. According to they used AI agents to read filings submitted over the past seven years for administrations commenced in England and Wales in 2019 – which Turnstone, Was “long enough for creditor returns to settle and buyer failures. The sweep of insolvency filings identified 544 pre-pack sales in 1,738 administrations during 2019, with the study’s numbers checked by other computer models and verified by humans.
Beyond the higher rate of failure, the study highlights how these deals impact creditors.
Connected-party buyers were far more likely to utilize deferred payment plans. While 65% of connected-party administrations allowed for these future installments, only 28% of unconnected buyers were granted the same terms. Consequently, unsecured creditors, including HM Revenue and Customs, often suffer; they received a return in only 23% of connected-party cases, with average payouts of just 1.58p in the pound compared to 7.86p for unconnected deals. HM Revenue and Customs estimates that phoenixisms cost taxpayers hundreds of millions of pounds a year. Cases have included owners extracting millions of pounds in dividends and loans from businesses they subsequently arrange to buy back from administrators. A total of 198 out of 303 connected-party administrations – 65% – allowed former owners and directors to reacquire the assets via future instalments. 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. Of course, the biggest loser is often the taxpayer.”.
Ben Sims, managing director at Turnstone Intelligence, noted the significant disparity in performance between connected and unconnected buyers. He suggested these findings will likely fuel ongoing discussions about whether the protection of these businesses justifies the financial burden placed on taxpayers and creditors, who often see minimal returns. “What was interesting to us was the sheer scale of losses,” Sims said. “You would hope these deals would provide better outcomes to creditors, but we see them getting almost nothing.
These findings align with previous investigations, including the government-commissioned 2014 Graham review and a 2018 study funded by the European Union. Riz Mokal, an honorary law professor at University College London who co-authored the EU study, described the new data as striking. He stated that the results reinforce concerns that connected-party pre-packs can allow non-viable “zombie” firms to shed debt while harming competitors that manage to meet their financial obligations. The methodology used by the latest researchers was broadly consistent with the earlier, EU-funded study.
Proponents of phoenixism argue that it is a legitimate legal process, sometimes providing better creditor outcomes than total liquidation because experienced directors may be better equipped to salvage operations. Furthermore, the industry body R3 has emphasized that the 2019 data predates stricter 2021 regulations.
Caroline Sumner, chief executive of R3, pointed out that current rules have increased the level of scrutiny applied to connected-party sales. She noted that these regulations now require independent evaluators to approve such transactions, adding significant safeguards and transparency requirements that were not in place during the period studied.
Sumner maintained that a connected-party pre-pack remains a regulated insolvency process overseen by licensed practitioners whose primary duty is to achieve the best possible result for the company’s creditors. She distinguished these formal insolvency procedures from broader concerns regarding phoenix activity, which often center on companies specifically attempting to shed liabilities while continuing trade. Where a supposed corporate rescue is agreed before commencing insolvency proceedings, the process tends to involve pre-pack administrations.
