The level of UK ‘zombie’ firms is starting to drop in line with economic recovery, according to the latest research from insolvency trade body R3.
From a peak high of 160,000 in November 2012, R3 have found that number has now fallen to 103,000, although there are higher numbers of ‘zombie’ firms now negotiating debts with creditors.
‘Zombie business’ numbers fell to 135,000 in February 2013, 108,000 in May 2013, and 102,000 in August 2013, before a small increase to 103,000 in November 2013 – representing 6% of the UK business population.
R3 president Liz Bingham said: “The decline of ‘zombie businesses’ – without a significant impact on corporate insolvency numbers – is welcome.
“Many businesses that previously fell into this category will have used low interest rates and the extended gap between recession and recovery to move to surer financial footing.
“However, that does not necessarily mean it is the end of the ‘zombie’ story.
While many ‘zombie businesses’ will have returned to good financial health, there is a significant number of businesses that have moved from ‘struggling but surviving’ to ‘full-on-struggling’”.
Despite the decrease in firms just paying interest on debts, there was a significant increase in the number of firms that are negotiating repayment terms with creditors, rising to 166,000 in November 2013 from 93,000 in August 2013.
There was also a sharp increase in the number of firms that would be unable to repay debts if there was a small increase in interest rates, up from 34,000 in August 2013 to 96,000 in November 2013.
Bingham believes these increases are a cause for concern.
She explained: “It’s a positive that business 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.
“It is also particularly worrying that so many businesses are concerned about the impact of interest rates on their ability to meet their debt obligations.
“With so many businesses still in a difficult financial situation, it is important that policy makers tread carefully.”