Pre-Pack Buy-Backs by Old Owners Fail Again More Often

Insolvent businesses bought back by their previous management in "pre-pack" administrations are much more likely to fail again and tend to repay far less to creditors, according to new research.

The study was carried out by Turnstone Intelligence. It used AI agents to read official documents on more than 1,700 administrations that began in England and Wales during 2019.

When the assets were bought by a connected party, such as former directors and shareholders, 44% of pre-packs had led to a second insolvency by July 2026. When the buyer was unconnected to the failed company, the figure was 26%.

Instalments and creditor returns

Of 303 connected-party administrations, 198 (65%) let former owners and directors reacquire the assets through future instalments. Among unconnected pre-packs, 28% of buyers used deferred payments.

Unsecured creditors, who typically include HMRC, received a return in only 23% of connected-party pre-packs with deferred payments. Those deals paid 1.58p in the pound. With an unconnected buyer, 36% of pre-pack administrations repaid these creditors, at 7.86p in the pound.

Ben Sims, managing director of Turnstone Intelligence, said he was surprised how big 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," he said.

The findings appear to mirror two earlier reports: research by the University of Wolverhampton for the government in 2014, known as the Graham review, and an EU-funded study from 2018. Riz Mokal, an honorary law professor at University College London who co-authored the EU study, said the new results were consistent with that earlier work. He said connected-party pre-packs can allow non-viable "zombie" businesses to shed their unsecured liabilities and keep trading, harming creditors, including HMRC, and competitors that continue to pay their way.

HM Revenue and Customs estimates that phoenix practices cost taxpayers hundreds of millions of pounds a year.

Source: The Guardian