UK zombies shuffle closer to apocalypse

Nine per cent of UK businesses now "zombies" unable to pay debts

The proportion of "zombie" businesses in the UK – those unable to pay their debts – has risen to nine per cent since July, when just 146,000 said they could only just manage to service their interest.

Lee Manning, president of insolvency professionals trade association R3, said that its research shows there are now 160,000 "zombie" businesses in the UK, up from 146,000 – or eight per cent of all UK businesses – in July.

That means 14,000 new "zombies" have been created in the last four or five months.

"I would add that the phrase also extends to those companies who are currently over-geared and cannot pay back the debt in full," said Manning.

The phrase "zombie business" refers to companies that can only service the interest they owe on their debt, without making any inroads on the debt itself, he explained.

Just surviving not enough Manning added that banks seem to be displaying "greater forbearance" on existing debt. However, if a business cannot get extra lending it cannot expand – going on and on without showing genuine signs of life or growth.

"Others would argue that this stagnation ties up capital that could be used for other, healthier businesses," Manning said.

This is despite the fact that corporate insolvency rates remain low when compared with previous recessions – peaking in 2009 at 25,432 for England and Wales.

According to R3, this meant there were nearly 8,000 fewer corporate insolvencies in 2009 compared to 1992, and they dipped again in the last quarter.

"Corporate insolvencies have traditionally tended to spike in early recovery, but so far this recession is rewriting the rules," added Manning. "This surely reflects this longer period of low growth that is the new norm."

Any business merely servicing debt over a sustained period should seek help, he noted.

R3's predictions were based on a BDRC Continental poll of 501 business owners or financial directors of companies with revenue of £50,000 or more, carried out on 5–12 November.

The previous poll was taken on 6–13 June.