Pre-Pack Buybacks by Former Owners Fail Again More Often

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Companies bought back by their former owners out of a "pre-pack" administration are more likely to collapse a second time, and they repay far less to creditors, according to research commissioned by the Guardian.

Turnstone Intelligence ran the study. It used AI agents to read official filings on 1,738 administrations that began in England and Wales in 2019, and found 544 pre-pack sales among them. Other computer models checked the figures, and humans verified them. Turnstone said seven years was long enough for creditor returns to settle and for buyer failures to show.

By July 2026, 44% of pre-packs sold to a connected party, such as a former director or shareholder, had ended in a second insolvency. Where the buyer had no connection to the failed company, the figure was 26%.

Deferred payments and creditor returns

Connected buyers were also more likely to pay in instalments. In 198 of 303 connected-party administrations, or 65%, former owners and directors reacquired the assets through future payments. Among unconnected pre-packs, 28% of buyers used deferred payments.

Unsecured creditors, a group that typically includes HMRC, received a return in 23% of pre-packs where a connected party deferred payment. Those deals paid 1.58p in the pound. When the buyer was unconnected, 36% of pre-packs returned money to unsecured creditors, at 7.86p in the pound.

Ben Sims, managing director of Turnstone Intelligence, said: "I was surprised how big the gap remains." The results, he said, support what many in the industry have long suspected and will feed the debate over whether saving these businesses is worth the impact on taxpayers and creditors. "What was interesting to us was the sheer scale of losses," he said, adding that the biggest loser is often the taxpayer.

A practice under scrutiny

The study adds to questions about "phoenixism", the practice of liquidating a company so that directors can return with a new entity free of debts. It tends to involve pre-pack administrations, in which a supposed rescue is agreed before insolvency proceedings begin. These orchestrated deals often leave unsecured creditors with large losses. In some cases, owners extracted millions of pounds in dividends and loans from businesses they then arranged to buy back from administrators. HM Revenue and Customs estimates that phoenixism costs taxpayers hundreds of millions of pounds a year.

The findings appear to closely mirror two earlier reports: a 2014 University of Wolverhampton study for the government, known as the Graham review, and a European Union-funded study from 2018. Both pointed to poorer outcomes in connected pre-packs, and the problem grew when connected parties reacquired assets through deferred payments. Turnstone's method was broadly consistent with the EU-funded study. Riz Mokal, an honorary law professor at University College London who co-authored the EU study, called the new results "striking" and consistent with that earlier work. He said they reinforce concern that connected-party pre-packs can allow non-viable "zombie" businesses to shed unsecured liabilities and keep trading, harming creditors and competitors that continue to pay their way.

Phoenixism is legal. Its defenders say it can deliver better returns for creditors, because experienced directors are sometimes better placed than newcomers to salvage a failed company.

R3, an insolvency industry body, noted that the research looked only at cases that predate 2021 rules that increased scrutiny of connected-party pre-pack sales. Those rules require independent evaluators to clear such sales. R3 chief executive Caroline Sumner said a connected-party pre-pack sale is a legitimate, regulated process overseen by licensed insolvency practitioners. Concerns about phoenixism, she said, generally relate to businesses seeking to avoid liabilities while continuing to trade through a new entity.

Source: The Guardian