Phoenix Recruitment Insolvencies: How “Phoenix” Restarts Can Wipe Out Supplier Debts And Hit Recoveries

Phoenix recruitment firms and unpaid tax bills: what “phoenixism” means for creditors and collections

Welcome to Debt Matters, the UK podcast for credit control, collections, and cashflow risk.

Today we’re unpacking “phoenixism” in recruitment: when a firm goes into insolvency, leaves debts behind, and a new company continues the trade under connected parties.

What happened

Multiple recruitment businesses have entered administration and then been sold out (often via pre-pack style deals), allowing operations to continue while large HMRC liabilities and other unsecured debts are left in the old entity. Estimates cited put the annual cost of phoenixism at around £800m, with analysis suggesting about £840m, roughly 22 percent of total tax losses reported for 2022 to 2023.

What “phoenixism” looks like in practice

A sale is agreed quickly, key assets transfer, staff and client relationships continue, and the trading name may change slightly. Continuity can protect jobs and service delivery, but unsecured creditors can find that:

• the value moved on
• the debt stayed behind
• recovery prospects fell sharply

Why it matters for collections teams

1. Recoverability changes overnight When administration hits, you shift from collecting an overdue invoice to joining a creditor queue. In many cases unsecured creditors receive little, if anything. If a near-identical business appears, it may be trading but not liable for the old invoices.
2. Payment discipline can weaken If liabilities can be shed and business can restart, late payment becomes more “tolerable” for bad actors. That squeezes suppliers, raises re-default risk, and pushes bad debt up the chain.
3. Competitive distortion Compliant firms paying PAYE, VAT, and suppliers can be undercut by businesses that build arrears, fail, and restart with a cleaner balance sheet.

Who is impacted

• HMRC and taxpayers: old liabilities chased while trade continues elsewhere.
• Trade suppliers: software, marketing, job boards, consultants, landlords, utilities, training providers.
• Clients: continuity may hold, but operational and reputational risk rises if payroll and compliance are under strain.

Early warning signs in recruitment Recruitment is cashflow-fragile: weekly payroll, 30 to 60 day client terms, tight margins. Watch for:

• late or irregular payments becoming normal
• term-stretch requests around payroll dates
• sudden changes to trading name, bank details, or billing entity
• frequent director or shareholder changes, or new linked companies
• late filings or repeated restructuring signals
• small part-payments to keep suppliers quiet
• pressure to keep supplying “because we have big clients”

Practical actions for creditors

1. Monitor connected parties: director and company link checks, not just a single company search.
2. Reduce exposure early: shorter terms, staged payments, deposits, weekly billing, “pay to continue” milestones.
3. Contract hardening: correct legal entity, insolvency triggers, termination rights, and (where appropriate) guarantees.
4. Move earlier, not louder: get the decision-maker, agree an affordable plan, put dates in writing, escalate fast if broken.
5. If insolvency lands: switch to insolvency mode immediately, submit proof of debt quickly, ask about connected-party sales and pre-pack details, and get specialist advice early if you suspect asset stripping.

#DebtCollection #CreditControl #AccountsReceivable #Cashflow #Insolvency