R3 figures reveal increase in ‘Zombie’ businesses in the East of England

Frank Brumby, eastern region chairman of R3.

Frank Brumby, eastern region chairman of R3. - Credit: Archant

“Zombie” businesses are on the march in the East of England, according to a survey by insolvency trade body R3.

The number of “zombie” firms, those meeting the interest charge on their debts but not able to repay their borrowings, has increased from 18,000 to 25,000 since August – in contrast to a downward trend across the UK as a whole over the past year.

Frank Brumby, R3 Eastern regional chairman, said: “Across the UK the number of businesses just paying the interest on their debts fell from 154,000 last year to 69,000 now, which is the lowest number of businesses in this position since the research began in June 2012.

“R3’s research suggests that our regional firms may not be experiencing the same profitability. This is backed up by a further survey finding which shows that the number of eastern businesses negotiating payment terms with creditors more than doubled this year, rising from 12,000 last year to 26,000 currently.”

More encouragingly, however, the R3 survey highlights that the number of eastern region businesses struggling to pay debts when they fall due has plummeted from 26,000 last year to a negligible amount now.

Mr Brumby, a director at Isadore Goldman in Norwich, said: “The above statistics may seem contradictory, but I believe that what we are seeing in the East of England is businesses engaging with creditors before their finances become critical, and maximising the availability of low interest rates to boost cash flow and prepare for growth.

“This proactive approach to cash flow management has been made possible by the current trend of creditor forbearance, which is a notable consequence of the last recession. Banks, in particular, remain under pressure to show they are supporting customers by providing greater flexibility with repayment terms.

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He added: “In essence, the economic climate is rewriting the rules of recovery as we once 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, they alleviated some of the pressure on businesses and gave many of them an opportunity to get their finances in order.”