With an rise in zombie companies, businesses are becoming increasingly under pressure that they may lose key customers and cannot afford for zombie companies to fail.
This is helped further by HMRC allowing companies to enter into time to pay schemes and banks freezing or reducing capital repayments
But in the wake of these zombie companies having just enough cash to survive they don’t have sufficient resources to invest in long-term growth. Thus why it will be extremely difficult if not impossible for these companies to recover out of the recession which is an utter shame as directors are working extremely hard to try and make these companies a success but to no avail.
In ordinary circumstances (and this recession should be no different) these zombie companies would have either been restructured which included an element of debt write off or plainly closed down with their assets stripped down and liquidated. The directors and shareholders would have started up again making these companies more likely to be significantly healthier businesses then their predecessor.
The Association of Business Recovery Professionals known as R3 has conducted research showing that around 8% of businesses admit to only being able to service the interest on their debts never mind the capital repayments. So it could be that any significant increases in interest rates will finally see off the zombie companies.
Should you wish to discuss how businesses can be restructured or liquidated, contact our insolvency expert Steven Wiseglass.