Study Finds Phoenix Pre-Pack Deals More Likely to Fail Again

Companies revived through "phoenix" pre-pack administration deals are more likely to fail again and pay far less to creditors, according to research conducted for the Guardian. The study, published exclusively by the newspaper, examines the practice in which a struggling business is sold to new owners before its insolvency is publicly announced, allowing the operation to continue under a new corporate entity while the old company is wound up.

The research found that businesses rescued through such pre-pack arrangements are more likely to collapse a second time than companies that go through other insolvency processes. It also concluded that creditors of the failed original company receive substantially lower recoveries than they would under alternative routes, with the study describing the payments as far less than creditors would otherwise expect.

The findings add to long-running scrutiny of pre-pack administrations, which have drawn criticism because they can leave suppliers, landlords and other unsecured creditors out of pocket while allowing directors to retain control of the business under a new name. The Guardian said the research was commissioned specifically for the newspaper and focused on the outcomes of phoenix deals.

The study does not offer a breakdown of individual cases in the material provided, but its central conclusions point to a pattern of repeat failure and diminished creditor returns associated with the phoenix model. For investors and lenders exposed to distressed companies, the research underscores the risks of backing restructured entities created through pre-pack sales, where the historical liabilities of the predecessor business may not carry over. The findings are likely to inform the continuing debate over insolvency rules and creditor protections.