An investigation into the UK's recruitment industry has uncovered a costly pattern of business 'phoenixism', where companies are liquidated only to be swiftly reacquired by their former directors, leaving substantial tax debts unpaid. This practice is estimated to deprive the public purse of hundreds of millions of pounds annually.
How Pre-Pack Deals Drain Public Funds
HM Revenue & Customs (HMRC) estimates that the widespread practice of phoenixism costs taxpayers about £800m every year. This figure represents a staggering 22% of the £3.8bn in total tax losses reported for the 2022-23 period. The process typically involves a company entering a pre-pack administration—an insolvency procedure agreed in advance—where its assets are sold, often to a connected party, free of historic debts.
Recent cases highlight how this mechanism operates within the staffing sector. In September, the recruitment firm Russell Taylor was acquired from administration for £200,000, with further instalments totalling £550,000. This transaction seemingly left behind nearly £1m in debts owed to HMRC, which are not expected to be recovered. Notably, this was the second time connected parties had resurrected the business from insolvency in the past decade.
The administrator's report confirmed that Robert Kurton, the current managing director who was previously linked to the earlier iteration of the company, would be a director and shareholder of the new purchasing entity. A spokesperson for Russell Taylor Group stated that Kurton previously held only a minority shareholding without significant control and that the administration process was ongoing.
Recent Cases and Industry Defence
Other prominent examples have emerged in recent months. In November, Silven Recruitment, a food and drink industry specialist, was bought for approximately £150,000 by Jeremy Pierce, its former director and majority shareholder. The company had entered administration owing HMRC around £600,000, a debt later reduced to about £400,000.
Pierce, who now controls the purchasing entity Northbridge 75, strongly rejected the characterisation of this as phoenixism. He argued that administration was a last resort after exhausting all alternatives to save the business, and that his bid was independently verified as the best outcome for creditors while preserving jobs.
In another instance, 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 noted a common director and shareholder between the old and new companies.
The Wider Impact and Expert Scrutiny
The scale of the issue was further underscored by the case of Challenge Recruitment Group, revealed by the Guardian in August. The exchequer is reportedly chasing about £90m in unpaid taxes after the firm was rescued from insolvency in an £18m deal that fully reimbursed private funders.
While some in the accounting profession suggest phoenixism may allow the exchequer to eventually recoup lost taxes through the continued trading of the new entity, experts are sceptical. Louise Gracia, a professor of accounting at Warwick Business School, warned of the dangers. "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 emergence of these latest cases adds to growing scrutiny of pre-pack administrations in the recruitment sector, raising fundamental questions about value for the taxpayer and the integrity of the insolvency regime.
