Zombie businesses lurch towards recovery

  The end of the recession may have come just in time for many so-called ‘zombie businesses’, which were living on borrowed time during the worst of the economic turbulence.   In November 2012, R3 – the Association of Business Recovery Professionals found that 160,000 businesses in the UK matched the ‘zombie’ profile, a termRead More

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The end of the recession may have come just in time for many so-called ‘zombie businesses’, which were living on borrowed time during the worst of the economic turbulence.


 

In November 2012, R3 – the Association of Business Recovery Professionals found that 160,000 businesses in the UK matched the ‘zombie’ profile, a term used to denote those with just enough money to service their ongoing costs, but not enough to pay down their debts, invest in innovation or expansion, or weather any further financial shocks.

 

In a newly published report, however, R3 places the figure at 103,000, some 57,000 below its peak, and says that there has not been a 57,000-strong surge in company insolvencies to account for the disappearance of the remainder.

 

This is a clear indication that at least some zombie businesses have recovered their financial footing, and R3 president Liz Bingham suggests that factors like the prolonged low Bank of England base rate of interest, along with the early spike in insolvencies during the recession itself, may be keeping post-recession insolvencies in check.

 

“Many struggling businesses will have used the unexpected grace period between recession and recovery to put their house in order, allowing them to spring back to life,” she says.

 

But it is not all positive news – 166,000 businesses are currently negotiating new terms with their creditors, and 96,000 would be unable to service their debts if interest rates were to rise.

 

These firms are all in an even worse position than the ‘zombie business’ profile typically designates, and Ms Bingham says: “Whereas zombie businesses can keep going for the time being, businesses in these latter two situations are approaching crunch time.”

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