‘Zombie companies’ on the increase in region

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YORKSHIRE and the north east is home to 16,000 ‘zombie companies’, according to research published by insolvency trade body, R3.

A ‘zombie’ business is defined as a company that is only able to pay the interest on its debt, but not the debt itself.

This figure represents nine per cent of all businesses in the region, and it reflects national trends.

R3 reports that there are now 160,000 zombie businesses in the UK, which is nearly a 10 per cent increase on July’s figure.

Robert Adamson, the chairman of R3 in Yorkshire, who is also the northern head of restructuring services for Mazars, said: “The phrase ‘zombie business’ has been bandied around quite freely ..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, particularly when compared with previous recessions.

Corporate insolvencies for the most recent recession peaked in 2009 at 25,432 for England and Wales.

This meant there were nearly 8,000 fewer corporate insolvencies in 2009 when compared with 1992, and they dipped again in the last quarter.

Mr Adamson added: “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.”

The findings are based on a study by BDRC Continental, who interviewed 501 business owners or finance directors of businesses with turnover of more than £50,000.