‘Zombie businesses’ return to the land of the living
The number of businesses just paying the interest on their debts – a key characteristic of ‘zombie businesses’ – has plummeted from 154,000 in August 2014 to 69,000 now, according to research by insolvency trade body R3.
This is the lowest number of businesses in this position since the survey began in June 2012, having peaked at 160,000 in November 2012.
Phillip Sykes, president of R3, said:
“There has been a dramatic decrease in the number of ‘zombie businesses’ since we began our research.
“Encouragingly, the findings suggest that businesses are experiencing greater profitability. We are now seeing more companies able to afford to pay off the debt itself and not just the interest. This is understandable in this period of ‘non-flation’. A strong pound and lower oil prices may also be helping businesses’ balance sheets.
“The economic climate is rewriting the rules of recovery as we knew it. When interest rates dropped in 2009 it was never expected that they would remain at that level for so long but by doing so it alleviated some of the pressure on businesses and allowed them an opportunity to get their finances in order.”
According to the R3/BDRC research around 97,000 businesses say they have to negotiate payment terms with creditors, down from 135,000 last year.
Phillip continues:
“Creditor forbearance has been a notable consequence of the last recession. Creditors, in particular banks, remain under pressure to show that they are supporting customers by providing them with greater flexibility in terms of their repayment.”
77,000 businesses say they would be unable to repay debts if interest rates increase by a one percentage point or more. The report also found that 55,000 businesses say they struggle to pay debts when they fall due, down from 64,000.
Phillip adds:
“The low interest rates have been a great aid to businesses but they won’t last forever.
“While the amount of businesses that would be unable to repay debts has decreased by nearly a quarter since last year, it still represents a considerable number of companies who will be put in a precarious position when a rise does come.”
