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£70bn cost of the ‘walking dead’ 23 September 2013

The UK has seen a 108% rise in ‘zombie’ companies over the last five years, with these companies now representing some £70bn in negative equity, according to new research completed by Company Watch.

The companies, defined in this case as those with debts greater than their assets, have multiplied in number from 109,000 in 2008 to over 227,000 this year.

As such, the new figures mean that more than one in 10 of the UK’s 2.5m active, registered companies are only producing enough cash to service bank and supplier debts, yet not enough to grow or restore balance sheets to parity.

In 2008, the collective negative net worth of these ‘zombie’ companies totalled £31bn – less than half the current level.

£70bn is three times the UK defence budget, about two thirds of the National Health Service budget and more than five times the annual £13bn budget for the Department for Business, Information and Skills.

Nick Hood, business risk analyst at Company Watch, said: “The problem with this ever-growing army of zombies goes well beyond any immediate threat of insolvency.

“These struggling businesses distort fair competition right across the economy as they underbid for contracts in their desperate ongoing battle to generate cash to keep their creditors at bay.

“The damage they cause to healthier companies can be seen especially in sectors like construction where ‘suicide pricing’ is depressing the profitability of the entire industry.”

According to the research, the construction sector currently has 26,000 ‘zombie’ companies, ahread of the media (21,000), retail (20,000), property (16,500) and hospitality (15,500) sectors.

The business services sector has over 65,000 ‘zombie’ companies with a negative net worth of £20bn.

According to the Association of Business Recovery Professionals, 497,000 people are employed by ‘zombie’ companies, and 1.3 million by acutely distressed ones – about 4.4%of the British workforce.

Hood said: ““As the economy improves, a proportion of these businesses will be able to trade themselves into stronger positions.

“But when interest rates eventually rise and activity levels increase, the lack of financial resources of many others will cause a surge in insolvencies for the weak and rapidly rising bad debts for their banks and other creditors.”

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