Industry split on whether to revive ‘zombie’ firms

RESEARCH from the Birmingham office of law firm Gateley and advisory and restructuring specialists Zolfo Cooper has revealed that industry leaders are split over whether lenders and the Government should continue to invest time and capital in reviving so-called zombie businesses.

Zombie companies are defined as businesses still trading but that are no longer financially viable and are being kept “alive” by low interest rates and, in many cases, by their banks (sometimes with Government assistance) that may prefer to grant concessions to their borrowers than take enforcement action and write off the debt.

A recent conference – ‘Resuscitating Zombie Companies’ –  brought together professionals from the banking, legal, investment, insolvency and restructuring industries, as well as a leading chief economist. 

Research carried out amongst the delegates revealed that industry leaders are split down the middle when it comes to agreeing on whether zombies are now more of an obstacle to future economic recovery and whether capital tied up in them should be released and invested productively elsewhere.

In contrast, more than half (60%) of those questioned stated that the Government should not provide further assistance to UK clearing banks to support zombie firms in the future.

However, the research highlighted that 80% welcomed the banks’ patience so far, saying it has helped to limit failures and unemployment and afforded these companies the time to attract investment and start the road to recovery during challenging times.

Brendan McGeever, a corporate recovery partner at Gateley’s Birmingham office and chairman for the Institute of Turnaround in the Midlands, said: “With around 160,000 businesses in the UK currently operating as zombie companies, this is a very real issue. 

“The figure has doubled in the last few years and it’s not surprising that as an industry we are keen to focus on a longer term resolution.  Insolvency should not be inevitable, and as long as early, decisive action is taken it is rare to come across a situation where liquidation is the best option. 

“Even in the most distressed cases there may well be an opportunity for an accelerated marketing process to sell the business to a competitor or strategic investor, which can preserve value and save jobs.”