Zombie businesses on the rise
One of the country’s leading insolvency practitioners says government support measures handed out during the peak of the Covid pandemic increased the number of ‘debt burdened zombie businesses’ with ‘marginal prospects of a return to good health’.
The suggestion comes as latest monthly insolvency statistics for October 2022 reveal 1,948 total company insolvencies, 38% higher than in the same month in the previous year (1,410 in October 2021), and 32% higher than the number registered three years previously (pre-pandemic; 1,477 in October 2019).
Chris Tate, restructuring and insolvency partner at Azets, the UK Top 10 firm, believes vital financial support measures – a lifeline for many businesses – meant some already ailing businesses could continue to trade for longer than they otherwise could have.
He said: “This continued increase in corporate insolvencies versus pre-pandemic levels is primarily fuelled by a rise in Creditor Voluntary Liquidations (CVLs), a terminal process whereby there is often very little recovered by creditors.
“A proportion of these liquidations relate to businesses that would have failed sooner were it not for the government support measures, which, while they were instrumental in providing businesses much needed support, inadvertently propped up ailing businesses which were likely destined to fail in any event.
“This is also reflected in the recent increase in compulsory liquidations, partly driven by banks and HMRC taking more proactive recovery action.
“The smaller number of Administrations and Company Voluntary Arrangements (CVAs), seen as rescue tools to salvage viable businesses, suggests the pandemic will likely have significantly increased numbers of heavily debt burdened zombie businesses, now limping on with marginal prospects of a return to good health.”