‘Zombie businesses are running on empty’

Holding on: Gareth Self
Holding on: Gareth Self
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One in 20 northern businesses could be teetering on the brink of insolvency, according to the business recovery professionals’ organisation R3.

But, there are some encouraging signs that northern businesses are faring slightly better than companies in other parts of the country.

According to R3, there are 22,000 ‘zombie’ businesses across the north – businesses that are only just able to pay the interest on their debts, couldn’t pay if interest rates rose, struggle to pay debts when they fall due or are having to negotiate payment terms with suppliers.

“Essentially, a zombie business is one that is on the edge of insolvency but has been holding on, often for a prolonged period of time,” says Gareth Self, a member of R3’s Yorkshire committee and an insolvency practitioner with the Sheffield-based P&A Group of corporate and debt recovery specialists.

“Five per cent, or one in 20, of Northern businesses are only able to pay the interest on their debts but not reduce the debt itself.

“While this is lower than the national average of eight per cent, it is still a staggering number.

“The implication here is that these businesses have been running on empty for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer.”

However, 50 per cent of Northern businesses say they have invested in new equipment in the last three months, compared with 36 per cent nationally.

Meanwhile 33 per cent had seen an increase in sales, compared with 29 per cent nationally; and 32 per cent say profits have increased, compared with 26 per cent nationally.