Number of '˜zombie companies' drops to a record low

THE number of so-called 'zombie companies' has dropped to a record low in the North of England, according to new research.

Eleanor Temple of R3

The proportion of companies across the North that were only paying the interest on their debts – one of the signs of a “zombie” business – dropped to just 1 per cent in December, even lower than the UK-wide figure of 3 per cent, according to indicative research by R3, the insolvency and restructuring trade body.

Across the UK, the proportion of businesses only paying interest on their debts – equivalent to 49,000 firms – is now the lowest since R3 began tracking ‘zombie businesses’ in June 2012.

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It had reached as high as 9 per cent in November 2012 and August 2014.

R3’s research, based on interviews with 500 nationally representative businesses by BDRC, also found that other signs of acute distress have dropped to record or near-record lows.

In the North, as in the rest of the UK, just 1 per cent of companies surveyed report that they are having to negotiate payment terms with creditors, or would be unable to repay debts if there was a small increase in interest rates.

Eleanor Temple, chair of R3 in Yorkshire and a barrister at Kings Chambers in Leeds, said: “Although the wider economic picture isn’t an optimistic one, fewer companies in the North and across the UK appear to be struggling to meet some key immediate financial obligations than in recent months.

“The fall in businesses only paying the interest on debts comes despite the first rise in UK interest rates in a decade. Instead, it may be that November’s modest rate rise concentrated directors’ minds and, with the prospect of further rises in the near future, may have prompted businesses to deleverage or refinance now to avoid future pain.

“With the growth of alternative lending providers over the past five has become easier for struggling businesses to move out of immediate financial danger.”