“Zombie” businesses stalk the UK
The UK is home to around 146,000 “zombie” businesses, according to R3.
The insolvency trade body defines a zombie firm as one nearing the point of insolvency, but able somehow to hang on, with main features as follows:
- Just being able to pay the interest on debts, but not reduce the debt itself.
- In the event of a rise in interest rates, the business will be unable to pay its debt at all.
- Struggling to pay debts when they fall due.
- Having to negotiate payment terms with suppliers.
R3 president, Lee Manning, comments: “The implication here is that these businesses have been ‘running on empty’ for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer.”
Research by R3 also shows that the retail sector is featured most prominently across three out of the four zombie business indicators while at the same time having the highest proportion of enterprises that will be unable to pay their debts in the event of a rise in interest rates (31,000 retail firms).
Meanwhile, the construction sector has the largest proportion of businesses that are only able to pay the interest on their debts (37,000).