14,000 new zombie companies created since June
There are now 160,000 zombie businesses in the UK, that is businesses only able to pay the interest on their debt but not the debt itself, according to research by insolvency trade body R3. This is nearly a 10% increase on the number of business owners who said in July they were only servicing their interest, when it stood at 146,000 (or then 8%, today 9% of all UK businesses). This follows a gloomy pronouncement last week from Sir Mervyn King that Britain, “may be in for a period of persistently low growth.”
R3 President Lee Manning comments:
“The phrase ‘zombie business’ has been bandied around quite freely and looking at companies that can only service the interest they owe, but not the debt itself, is a practical definition of this term. I would add that the phrase also extends to those companies who are currently over-geared and cannot pay back the debt in full. We know that banks are displaying greater forbearance on existing debt, but when a business cannot get extra lending it will be unable to expand. Others would argue that this stagnation ties up capital that could be used for other, healthier businesses.”
Corporate insolvency rates remain historically low, especially when contrasted with previous recessions. Corporate insolvencies for this recession peaked in 2009 at 25,432 for England and Wales. This meant there were nearly 8,000 fewer corporate insolvencies in 2009 compared to 1992, and they dipped again in the last quarter.
Lee Manning continues:
“Low insolvency rates are good for employment, and our relatively flexible insolvency regime has allowed many insolvent businesses, especially in the retail sector, to emerge from administration with some jobs or stores intact. However, corporate insolvencies have traditionally tended to spike in early recovery, but so far this recession is re-writing the rules.
“This surely reflects this longer period of low growth that is the new norm, with low interest rates and low liquidation rates, but many businesses running at a loss. I would urge any business that is merely servicing debt over a sustained period of time to consider seeking professional advice.”
Methodology Note: BDRC Continental interviewed 501 business owners or FDs of businesses with £50K+ turnover, fieldwork dates: 5th - 12th November 2012. (Previous survey, 6th-13th June 2012)
For further information please contact:
Will Black, R3 Communications Manager
t: 020 7566 4215 m: 07917 422 485 e: firstname.lastname@example.org
Charlotte Towerton, R3 External Communications Officer
t: 020 7566 4203 m: 07918161 291 e: email@example.com
Notes to editors:
– R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners.
– R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by one of nine recognised professional bodies.
– R3 stands for ‘Rescue, Recovery, and Renewal’ and is also known as the Association of Business Recovery Professionals. Website www.r3.org.uk
R3 Press Office