Are Zombie firms dying?

Gareth Self
Gareth Self
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Zombie businesses could be dying out in Yorkshire and the Humber and the North East, according to the insolvency trade body, R3.

The number of businesses in the region that can only pay the interest on their debts fell from five per cent of the business population in August to two per cent in December, says R3.

“While we have seen zombie business numbers fall and stabilise both nationally and in our region, there hasn’t been a corresponding rise in corporate insolvencies,” says Gareth Self, Yorkshire R3 committee member and insolvency practitioner with the Sheffield-based P&A Group.

“Encouragingly, many struggling businesses will have used the unexpected grace period between recession and recovery to put their house in order. However, our research also shows thousands of businesses moving beyond ‘struggling but surviving’ into potentially dangerous territory.”

R3’s research shows the largest proportion of businesses having to negotiate payment terms with creditors is in Yorkshire and the Humber and the North East – up from one per cent in May 2013 to 17 per cent last month.

Nationally, a record 166,000 businesses are having to negotiate payment terms with creditors; and 96,000 say they would be unable to repay debts if there was a small increase in interest rates – the highest number of businesses in this position for over a year.

Mr Self says: “Whereas zombie businesses can keep going for the time being, businesses in these latter two situations are approaching crunch time.

“It’s a positive that businesses are taking action and addressing their problems by talking to their creditors. But, unfortunately, successfully negotiating new payment terms that work for both the creditor and debtor isn’t always possible.”

Mr Self says whether there is a spike in insolvencies around the corner depends on the fortunes of companies that are negotiating with their creditors or would be unable to pay their debts if interest rates were to rise.