‘Zombie’ companies on the rise say Begbies Traynor
DESPITE positive signs in the regional economy insolvency practice Begbies Traynor, says its reseach shows the number of zombie businesses is at a four-year high.
Based on an analysis of its Red Flag Alert the Manchester-based group says that one in seven North West businesses (just over 39,000 firms) are now ‘zombie’ companies – meaning they are only just generating enough cash to pay the interest on their debts and keep creditors at bay.
This latest analysis documents a 21.9% rise in zombie companies since 2010. This is approximately 5% more of a rise than the national average; however the North West is performing better than London and the South East and Midlands regions.
Real estate and property services, support services and the general retail sectors show the highest proportion of struggling firms with 6,644; 2,486 and 1,627 respectively in 2013.
Paul Stanley, partner at Begbies Traynor, said:”The analysis shows that these corporate zombies have clung onto life over the past number of years due to a low interest rate environment and increased creditor forbearance, but this benign climate cannot continue forever.
“As unemployment rates fall fast, under Bank of England rules interest rates could rise as early as 2014. Even If they go up by only 0.5% insolvencies could increase sharply. Ultimately not all zombies will face the same outlook – some will go on to recover through access to funds and improving market conditions, whilst others seem destined to fail.
“There is clear evidence that zombie companies are prohibiting the growth of healthy businesses and having a negative impact on the North West economy.
“The sting in the tail being that many of these businesses will be desperate for new orders and will be particularly vulnerable to overtrading. Our experience shows that even the most experienced directors can simply run out of working capital,” he added.
