UK pre-pack buybacks linked to higher repeat insolvency risk, study finds

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Highlights

Turnstone Intelligence found that 44% of connected-party pre-pack administrations in England and Wales resulted in a second insolvency by July 2026, compared to 26% for unconnected buyers.
In 65% of connected-party pre-packs, buyers deferred payments for asset acquisitions, resulting in unsecured creditors recovering only 1.58p in the pound in 23% of cases.
The study's findings support regulatory concerns that connected-party pre-packs yield poorer outcomes for creditors, aligning with previous UK and EU research into phoenixism and insolvency risks.

Research findings on connected-party pre-packs

As first reported by The Guardian, research commissioned from Turnstone Intelligence suggests pre-pack administrations involving connected buyers produce materially worse results than sales to unconnected parties. The study used AI agents to review official filings tied to more than 1,700 administrations begun in England and Wales in 2019, a period the researchers say is long enough for creditor returns and buyer failures to become visible.

Turnstone found that 44% of pre-packs ended in a second insolvency by July 2026 when the assets were bought by a connected party, compared with 26% when the acquirer was unconnected to the failed company. Ben Sims, managing director of Turnstone Intelligence, says he is surprised by the size of the gap and that the findings support long-running concerns over whether these rescues justify the impact on creditors and taxpayers.

The data also shows connected buyers are much more likely to be allowed to defer payments. In 198 of 303 connected-party administrations, or 65%, former owners and directors reacquire assets through future instalments, versus 28% of buyers in unconnected pre-packs.

Unsecured creditors receive a return in only 23% of connected-party pre-packs involving deferred payments, with average recoveries of 1.58p in the pound. When the buyer is unconnected, 36% of pre-pack administrations lead to repayments for those creditors, at 7.86p in the pound.

Regulatory debate and sector implications

The findings add to scrutiny of phoenixism, a legal but controversial practice in which failed companies are liquidated and their businesses continue under new entities free of old debts. HM Revenue and Customs estimates that phoenix activity costs taxpayers hundreds of millions of pounds a year, while critics argue the process can leave unsecured creditors, including HMRC, carrying large losses.

The latest results broadly match earlier work, including the 2014 Graham review for the UK government and a 2018 European Union-funded study, both of which point to poorer outcomes in connected pre-pack administrations. Riz Mokal, an honorary law professor at University College London and co-author of the EU study, says the new findings are consistent with earlier evidence that such deals can allow non-viable businesses to shed unsecured liabilities and keep trading, to the detriment of creditors and rivals that continue meeting their obligations.

Defenders of the practice say experienced directors can sometimes be better placed than outside buyers to rescue failed businesses and preserve value. R3, the insolvency industry body, says the research covers cases from before 2021 rule changes that increased scrutiny of connected-party pre-pack sales, including added safeguards, transparency requirements and independent evaluations for sales to connected parties.

Caroline Sumner, chief executive of R3, says connected-party pre-pack administration sales are legitimate and regulated insolvency procedures overseen by licensed practitioners. She says it is important to distinguish between connected-party pre-packs and phoenix activity more broadly, which is usually associated with attempts to avoid liabilities while continuing to trade through a new entity.

In our earlier article on a Malaysian Court of Appeal ruling, we covered how the court found that a lawyer holding commission-partner status could still be treated as a “partner” under the Partnership Act 1961 and held personally liable for an unpaid property sale balance. The decision overturned lower-court findings and highlighted wider implications for how liability may attach to non-equity, commission-based partners within professional firms.

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