"Zombie businesses" on the decline

BENIGN economic conditions have triggered a dramatic fall in the number of so-called ‘zombie’ companies.

According to insolvency trade body R3, since August 2014, the number of firms in the north just servicing, rather than paying down debts, has slumped by more than half, from 55,000 to 23,000.

Also, the number of businesses in the region which are having to negotiate payment terms with creditors has dropped from 39,000 last year to just 20,000 now. Similarly the number of firms which say they are struggling to repay their debts when they are due, has fallen also, from 64,000 to 5,000.

Adrian Berry, chair of R3 in Yorkshire and restructuring partner at Deloitte LLP, said: “There has been a dramatic decrease in the number of ‘zombie businesses’ since we began our research.

 

“Encouragingly, the findings suggest that businesses are experiencing greater profitability. We are now seeing more companies able to afford to pay off the debt itself and not just the interest. This is understandable in this period of ‘non-flation’. A strong pound and lower oil prices may also be helping businesses’ balance sheets.

 

“The economic climate is rewriting the rules of recovery as we knew it. When interest rates dropped in 2009 it was never expected that they would remain at that level for so long but by doing so it alleviated some of the pressure on businesses and allowed them an opportunity to get their finances in order.”