Region’s ‘zombie business’ population falls

The number of ‘zombie businesses’ in the South East has dropped dramatically, according to local insolvency experts.

‘Zombie businesses’ is the term given to companies that are only able to pay the interest on their debts. Numbers in the South East – which incorporates much of Hampshire, East and West Sussex, Kent, Buckinghamshire, Oxfordshire and Surrey – have fallen from 17,000 in November 2012 to just 5,000 today, according to research by R3, the insolvency trade body.

James Stares, Chairman of R3’s Southern Committee, and advisory director at Grant Thornton in Southampton, says: “While we have seen ‘zombie business’ numbers fall and stabilise, there hasn’t been a corresponding rise in corporate insolvencies. Encouragingly, 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’. ‘Zombie businesses’ have been amongst the chief beneficiaries of the relatively benign trading environment in the last few years.”

“However, our research also shows thousands of businesses moving beyond ‘struggling but surviving’ into potentially dangerous territory.”

R3’s research shows there are 103,000 ‘zombie businesses’ in the UK, equivalent to 6% of companies with a turnover of over £50,000. The South East has one of the lowest percentages of ‘zombie businesses’ in the country, at just 2%.

R3’s research also showed that some 29,000 businesses in the South East were having to negotiate their payment terms with their creditors.

James added: “It’s a positive that businesses are taking action and addressing their problems by talking to their creditors. But, unfortunately, successfully negotiating new payment terms that work for both the creditor and debtor isn’t always possible.

“Whether or not there is an insolvency ‘spike’ still to come depends on the fortunes of those companies that are negotiating with their creditors or who would be unable to pay their debts if interest rates were to rise.

“A genuine ‘spike’ in insolvencies may now be unlikely, but there could well be a prolonged period where corporate insolvency numbers are higher than where they might typically be, so long after a recession.”