Although a common buzzword at the moment within the accounting industry, research from R3 suggests that the number of zombie firms in the UK is actually subsiding.
Whilst 2012 saw an estimated peak of 120,000 UK firms understood to be in a zombie like state, the number has fallen to just over 100,000. The study found that although there are still a large number of firms believed to be financial turmoil, more of these zombie firms are negotiating existing debts with their creditors.
These firms, which represent 6% of the UK economy, fell throughout 2013. The decrease is believed to be caused by many firms striking new deals with creditors, such as a CVA, or for those that have new credit accepted, restructuring existing deals with lenders and using the low interest rate as a platform for a more stable financial footing.
Zombie businesses became a bit of a media trend for the last few years with the term being coined from companies able to only pay off interest levels on their credit, being unable to move into a position of growth or to restructure.
Although the general trend has seen a decrease, the research was not shy to show there are still a large number of firms, which is actually increasing, that would not be able to repay their debts if there was a small increase in the interest rate. In total it is estimated that this figure rose between August 2013 and November 2013, from 34,000 to 96,000.
With firms restructuring their debts in a positive fashion, the successful negotiation of new payment terms that work for both creditors and debtors is not always possible. If your company is struggling to pay anything but the interest on its debts we recommend that you speak to us immediately. There are a range of options available to directors who act quickly and use a qualified insolvency practitioner.