Crunch time for struggling firms

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The number of ‘zombie businesses’ in Yorkshire and Humber is falling, but more companies are facing acute cash problems, according to the insolvency professionals’ organisation, R3.

The organisation says the region now has 6,000 zombies – businesses that keep up with interest payments, but can’t pay off their debts.

That represents four per cent of all businesses in the region, down from nine percent last November.

However, the number of businesses struggling to pay their debts when they fall due or negotiating payment terms with creditors is up.

There are now at least as many companies struggling with debt in the region as there are zombies.

Gareth Self, an insolvency practitioner within the P&A Group of Companies in Sheffield and a member of R3’s Yorkshire committee, says: “There are fewer ‘zombie businesses’, but this is not necessarily because businesses that have been in this position are showing signs of improvement.

“Far bigger cash flow problems are occupying the thoughts of these businesses’ managers.”

Mr Self warns that signs of an economic up turn could result in some of the struggling companies going to the wall.

“With the economy recovering, it’s crunch time for struggling businesses as lenders start to make their minds up about which businesses to continue to support and which businesses to call time on.

“Not all struggling businesses are doomed to failure,” says Mr Self, adding: “The prolonged period of low interest rates and government support schemes has made it hard to distinguish between businesses that are struggling but viable and those businesses that do not have a future.”