Are you at risk of running a zombie company?

By Mr Bankruptcy

29th October 2020

Lockdown has seen the rise of a hoard of zombie companies across the country. The Guardian newspaper reported that 20% of businesses in Britain are zombie companies; could yours be one of them?

What is a zombie company?

A zombie company is the name given to businesses that can’t pay off their debts in full and don’t have the cash to invest and grow but are still able, just, to survive and operate day to day.

These businesses cling to their workforce and resources so that they can’t be reinvested in the economy and put to better use by firms with stronger long-term prospects. These companies, in turn, suffer from slower productivity, which depresses the wider economy.

What sustains zombie companies?

A combination of factors are helping zombie businesses to sustain themselves during lockdown:

• Low interest rates. These have made it easier for businesses to keep up with interest payments but not to clear or significantly reduce their debts.
• Lenders not calling in debts. It’s in the lenders’ interest to give businesses time to repay their debts so they let them continue repaying for as long as possible.
• Government Schemes. In its attempt to save as many businesses as possible from closure, the Government introduced a raft of schemes to provide financial support to businesses as an interim measure but in reality, these companies may still not survive in the long term.  

Could your company be a zombie company?

As the government pushes to reopen the economy, we will see many of the initiatives it introduced to support businesses over lockdown come to an end and we will begin to see just how many businesses are viable and how many have been just delaying the inevitable through Government financial support.

In our post why do businesses become insolvent we discussed the signs of a business in trouble, including:

• Frequent defaulting on bills
• Issues with cash flow
• Unhappy staff
• Extended creditors days
• Falling margins

If your business is experiencing any of these issues and you can’t see an opportunity to turn around the financial situation and address your debts, it may be time to seek advice in order to address your debt rather than allow it to risk your long-term future.

James Rosa Associates

James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors facing unmanageable debt or involved in civil or commercial disputes.

Our services include:

• Insolvency support
• Negotiated settlements
• Personal assisted bankruptcy
• Mediation

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

Find out if you qualify for a free consultation

If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.

Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.