Phoenix deals: Revived insolvent companies more likely to fail again, study finds
Insolvent businesses reacquired by former management in pre-pack administrations are more likely to fail again, with poorer outcomes for creditors.
In Brief
- •Insolvent businesses reacquired by former management in pre-pack administrations are more likely to fail again, with poorer outcomes for creditors.
- •44% of pre-packs involving connected parties resulted in a second insolvency by July 2026, compared to 26% for unconnected pre-packs.
- •Connected parties were more likely to defer payments, with only 23% of connected pre-packs resulting in repayments to unsecured creditors.
- •The study found that connected pre-packs paid out just 1.58p in the pound to creditors, compared to 7.86p in the pound for unconnected pre-packs.
- •The findings appear to mirror results from previous studies, including a 2014 UK government review and a 2018 EU-funded study.
Why It Matters
The study highlights the risks associated with 'phoenixism,' a controversial accounting practice that allows directors to revive insolvent companies. These deals often leave unsecured creditors, including HM Revenue and Customs, with significant losses. The findings underscore the need for regulatory oversight to ensure fair treatment of creditors and taxpayers. The practice not only impacts individual businesses but also has broader economic implications, potentially distorting market competition and financial stability.
Key Details
- Connected pre-packs second insolvency rate
- 44%
- Unconnected pre-packs second insolvency rate
- 26%
- Connected pre-packs creditor repayment rate
- 23%
- Unconnected pre-packs creditor repayment rate
- 36%
- Connected pre-packs creditor repayment amount
- 1.58p in the pound
- Unconnected pre-packs creditor repayment amount
- 7.86p in the pound
Context & Background
Phoenixism is a controversial accounting practice that allows directors to revive insolvent companies by liquidating them and then acquiring the assets through a new entity. This practice has been criticized for its potential to distort market competition and financial stability, as well as for its negative impact on creditors and taxpayers.
Original Reporting & Sources
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