Research commissioned by the Guardian found that insolvent businesses reacquired by their former management through "pre-pack" administrations face significantly higher failure rates and leave creditors with substantially lower repayment amounts.
Pre-pack deals occur when a company enters administration and its assets are sold quickly, often to the same management team that ran the failed business. The practice sits within the broader phenomenon of "phoenixism," where directors liquidate companies to shed debts and restart operations under a new entity.
The Guardian's research examined patterns in these transactions and discovered a troubling cycle. Businesses that cycle through pre-pack arrangements with returning management fail at markedly elevated rates compared to other restructured companies. The same arrangements also result in creditors recovering far less money than they would through standard administration processes.
The findings add to a growing body of scrutiny around phoenixism. Previous analysis by the Guardian identified recruitment firms using the practice to avoid tax obligations and restructure debts.
The research raises questions about whether pre-pack administrations with former management truly represent legitimate business rescue or function as a mechanism that benefits directors while harming creditors and leaving the underlying operational problems unresolved. When the same leadership team returns to run a reconstituted business, the factors that caused the original failure may persist.
The Guardian's investigation comes as the practice faces ongoing debate among regulators and business policy makers about whether current safeguards adequately protect creditors and prevent abuse.