There has been a fall in the number of so-called 'zombie businesses' in the UK, according to new research by R3, the insolvency and restructuring trade body.
The research found that the proportion of companies that are only paying the interest on their debts – one of the signs of a ‘zombie’ business – has dropped to 3% in December from 5% in April this year. This is apparently the lowest level since R3 began tracking ‘zombie businesses’ in June 2012.
R3’s research also found that other signs of acute distress have dropped to record or near-record lows.
Just 1% of UK companies report having to negotiate payment terms with creditors, being unable to repay debts if there was a small increase in interest rates, or that they are struggling to pay debts when they fall due.
“The fall in businesses only paying the interest on debts comes despite the first rise in UK interest rates in a decade,” commented Duncan Swift, deputy vice-president of R3. “Instead, it may be that November’s modest rate rise concentrated directors’ minds and, with the prospect of further rises in the near future, may have prompted businesses to deleverage or refinance now to avoid future pain.”
“Another factor is simply that, with corporate insolvencies edging upwards over the last 18 months, some of those companies struggling earlier in the year have ceased to trade or gone through a rescue process,” he added. “A recent OECD report found the UK had the group’s best insolvency and restructuring framework for dealing with the ‘zombie’ business phenomenon, which has helped keep ‘zombie’ numbers lower in the UK than elsewhere.”
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