Taxpayers are losing hundreds of millions of pounds annually due to a controversial insolvency practice known as 'phoenixism', where company directors liquidate businesses to shed debts and then reacquire the assets, a Guardian analysis has revealed.
The £800m Annual Hit to the Public Purse
HM Revenue and Customs (HMRC) estimates that phoenixism costs the UK exchequer approximately £800 million every year. Analysis of the tax authority's own data suggests this accounted for a staggering £840m, or 22%, of the £3.8bn in total tax losses reported for the 2022-2023 period. The practice involves placing a company into a pre-pack administration—an insolvency process agreed in advance—allowing its assets to be swiftly sold, often to a connected party, free of the original company's liabilities, including substantial tax bills.
Case Studies: Directors Rising from the Ashes
A series of recent cases in the recruitment sector has brought the issue into sharp focus. In September, the recruitment firm Russell Taylor was acquired from a pre-pack administration for £200,000, with further instalments totalling £550,000. This left behind an unpaid tax debt to HMRC of nearly £1m. This was the second time connected parties had resurrected the business from insolvency in a decade.
The administrator's report noted that Robert Kurton, the current managing director, who was previously a director and minority shareholder in the earlier iteration of the business, would become a director and shareholder of the new purchasing entity. A spokesperson for Russell Taylor Group stated that Kurton did not have significant financial control in the failed business and that the administration was being managed by appointed professionals.
In another instance, Silven Recruitment, which specialises in the food and drink industry, was bought for around £150,000 in November by Jeremy Pierce, its former director and majority shareholder. The company had entered administration owing HMRC roughly £600,000, a debt reportedly reduced to about £400,000 during the process. Pierce, who now controls the purchasing company Northbridge 75, strongly rejected the characterisation of this as phoenixism, calling administration a 'last resort' after exhausting all alternatives to save the original business.
Furthermore, the teacher supply agency Qualiteach was sold for just £27,000 to a connected party in September, despite appearing to owe the taxpayer at least £304,988. The administrator's report explicitly stated the purchaser and Qualiteach had a common director and shareholder.
Industry Concerns and the Cycle of Insolvency
These cases add to a growing list of questionable administrations within the recruitment industry. In a major case revealed last August, the exchequer is pursuing around £90m in unpaid taxes after Challenge Recruitment Group was rescued from insolvency in an £18m deal that fully reimbursed private funders. Similarly, Premier Group Recruitment entered administration in September with £647,000 owed to HMRC, only for its assets to be acquired three days later by a new company founded by its former 99% shareholder.
While some in accounting argue that allowing businesses to survive via phoenixism may enable the exchequer to recoup future taxes, others are deeply sceptical. Louise Gracia, a professor of accounting at Warwick Business School, warned of a dangerous cycle. "There is a danger that business will repeat the cycle of phoenixism if they find it to be financially advantageous," she said. "There is also the issue of unfair competition. Together these aspects probably outweigh any economic benefits."
The continued use of these pre-pack deals, particularly where directors or shareholders are closely involved in the purchasing entity, raises significant questions about value for money for the taxpayer and the integrity of the insolvency regime.
