By Duncan Brodie, Business Editor
Friday, November 23, 2012
“ZOMBIE” companies which are able to pay the interest on their debt but cannot pay off the debt itself represent a major economic challenge for the East of England, according to the regional head of insolvency trade body R3.
According to new figures compiled by R3, there are now 160,000 “zombie” businesses across the UK, a 10% increase compared with three months ago, representing around one in 10 of the nation’s companies.
And R3 says that the figures provide evidence to support a pronouncement earlier this month by Bank of England governor Sir Mervyn King that Britain “may be in for a period of persistently low growth”.
“Zombie companies are symptomatic of a stagnant economy, with a combination of low interest rates, low liquidation rates and many businesses running at a loss,” said Shay Lettice, eastern region chairman of R3.
“Whilst the R3 research highlights that the proportion of zombie companies operating in the East of England is less than the overall national figure, there is still a large enough number to indicate a sizeable economic challenge for the region.
“The banks are displaying greater forbearance on existing debt, but when a business cannot get extra lending, it is unable to recover and expand.”
However, Mr Lettice, a partner at Peters Elworthy & Moore, added: “On a more positive economic note, corporate insolvency rates remain historically low, especially when contrasted with previous recessions.
“Low insolvency rates are good for employment, and our relatively flexible insolvency regime has allowed many insolvent businesses in our region, especially in the retail sector, to emerge from administration with jobs or stores intact.
“Corporate insolvencies have traditionally tended to spike in early recovery but, so far, this recession is re-writing the rules.”