Use of 'phoenixism' by recruitment firms costing exchequer millions in lost taxes

Insolvent recruitment businesses shorn of their debts then reacquired from administration by the directors or shareholders who presided over their demise are costing the exchequer tens of millions of pounds in lost taxes, a Guardian analysis suggests.

- Simon Goodley

The practice of "phoenixism" - liquidating a company and allowing the directors to rise from the ashes with a new entity, free of debts - is estimated by HM Revenue and Customs (HMRC) to have cost taxpayers about £800m a year.

A series of cases have emerged where staffing businesses have been acquired out of pre-pack administrations - an insolvency process agreed in advance - and continued to trade partly under the control of previous owners or management.

In September, the recruitment company Russell Taylor was acquired from a pre-pack administration for £200,000 plus subsequent installments totalling £550,000, seemingly leaving debts to HMRC of almost £1m that are not expected to be repaid.

The transaction was the second time connected parties had resurrected the business from insolvency during the past decade, after Russell Taylor Management was initially acquired from administration in 2015.