Thames Valley: ‘Zombie business’ population falls, says R3

The number of ‘zombie businesses’ in the Thames Valley has dropped dramatically, according to local insolvency experts.

‘Zombie businesses’ is the term given to companies that are only able to pay the interest on their debts. Numbers in the South East have fallen from 17,000 in November 2012 to just 5,000, according to research by insolvency trade body R3.

Julia Branson, from The Southern Region – Thames Valley Group of R3 and head of Julia Branson Restructuring Support LLP in Reading, said: “While we have seen ‘zombie business’ numbers fall and stabilise, there hasn’t been a corresponding rise in corporate insolvencies. Encouragingly, many struggling businesses will have used the unexpected grace period between recession and recovery to put their house in order, allowing them to spring 'back to life'. ‘Zombie businesses’ have been among the chief beneficiaries of the relatively benign trading environment in the past few years.

“However, our research also shows thousands of businesses moving beyond ‘struggling but surviving’ into potentially dangerous territory.”

R3’s research shows there are 103,000 ‘zombie businesses’ in the UK, equivalent to 6% of companies in the country with a turnover of over £50,000. The South East, which includes Oxford, Reading, Guildford, Newbury and Woking, has one of the lowest percentages of ‘zombie businesses’, at just 2%.

Branson commented: “It is difficult to pinpoint any one reason why there are fewer ‘zombie businesses’ in the South East than elsewhere, potentially it is the previous good fortunes of the area for business, but it could be that business owners are taking advice early and speaking to their creditors, at least I would like to think that has happened."

R3’s research also showed that some 29,000 businesses in the South East were having to negotiate their payment terms with their creditors.

Branson added: “It’s a positive that businesses are taking action and addressing their problems by talking to their creditors. But, unfortunately, successfully negotiating new payment terms that work for both the creditor and debtor isn’t always possible.

“Whether or not there is an insolvency ‘spike’ still to come depends on the fortunes of those companies negotiating with their creditors or who would be unable to pay their debts if interest rates were to rise.

“A genuine ‘spike’ in insolvencies may now be unlikely, but there could well be a prolonged period where corporate insolvency numbers are higher than they might typically be, so long after a recession.”