The Zombie Epidemic

Zombie: a) A reanimated corpse given the semblance of life, also known as the “The Walking Dead” or b) in business referring to a company that is only able to pay the interest of debts owed, and not the debt itself.

R3, the Association of Business Recovery Professionals, has estimated that 14,000 new zombie companies have been established since June 2012, increasing the total to 160,000 zombie businesses in the UK. This represents 9 % of all UK businesses today, and as Lee Manning, President of R3, states “More and more companies are catching the Zombie disease.”

Although a viewpoint could be made that it is preferable to not put a company into insolvency proceedings, and to instead restructure the company, a zombie company is only able to pay off the interest on their debts, meaning that not only are they unable to pay off the actual debt, but it is extremely unlikely that they will be able to invest and/or innovate. This will lead to the company stagnating, with loss of clients and laying off of employees as a result.

The Bank of England (BoE) claims that zombie companies were one of the causes for slow growth, and that banks were making the problems worse by preferring to let them cling onto survival rather than write down bad debts. This is causing valuable resources to be prevented from reaching start-up companies with the potential for higher productivity and overall economic growth. The BoE is not alone on this viewpoint, with Lee Manning saying “Other would agree that this stagnation ties up capital that could be used for other, healthier businesses. The company can limp along, it can survive, but it hasn’t got enough money to invest.

To put it another way, if someone had an infection in their foot that couldn’t be treated, the foot would be amputated before the infection could spread up the leg and to the rest of the body. This would prevent the loss of the whole leg, or even the person’s life. The question facing banks now is should the foot be amputated to save the leg? Or should they sit tight and hope the infection cures itself and doesn’t spread?

If you believe your business is a zombie company and would like help, then please contact Michael Goldsteinimmediately to work out your best option.