Phoenix Deals: Is It More Probable That Inspectors Will Be Ineffectual?

The practice of liquidation to reinvigorate businesses has seen significant growth over the past few years, but at a cost. This article focuses on a specific issue: 'pre-pack' liquidations that are more likely to fail again.

A recent Guardian study has highlighted that 44% of 'pre-pack' liquidations that were carried out in 2019 resulted in a second insolvency between July 2026 and July 2026. This figure was achieved when the properties of the company had been acquired by connected entities such as former officials or shareholders.

The Turnstone Intelligence, an AI market study, has shown that companies that have been revived by former officials or shareholders have a much lower performance than others. This means that companies that try to revive themselves using this method have minimal effectiveness and tend to pay less compensation to creditors.

Liquidation to reinvigorate businesses can be an effective way to deal with financial problems, but with significant costs. The cost of these 'phoenix deals' is often higher than that of a normal liquidation, and their effectiveness is limited. According to the report, these 'pre-pack' liquidations are particularly harmful for inspectors, who should be responsible for managing troubled companies. Moreover, these operations can lead to significant losses for public contributors, since they involve liquidating companies that then get revived by former officials or shareholders.

However, despite these disadvantages, this practice continues to be used because it offers a temporary advantage: allows managers to return to work with a new job, free from debts. But this advantage is too short-lived to evaluate whether the practice is truly useful or just a way to avoid the definitive solution.

Finally, it is important to remember that 'pre-pack' liquidations are never a definitive solution for troubled companies. The most common and efficient liquidations are those based on a rigorous planning and controlled management, which guarantee an immediate response to the needs of the company.