The Living Dead of the UK economy

Zombie companies’ making little or no profit could be the reason for the prolonged economic stagnation, says an insolvency specialist.

As government insolvency statistics for the fourth quarter of 2011 revealed liquidations and administrations are up by 7.2% on the same period in 2010, one solicitor has voiced a belief that these negative figures are masking the real problem, the ‘zombie company’, which he says is threatening to drag the UK’s weak growth back down into recession. ‘Rather than pull the plug on these businesses, the banks artificially prolong the life of these companies that would otherwise have failed, by varying the terms of their banking facilities. ‘They limp on using capital and skills that would arguably be better placed in a growing business.’

The same solicitor adds that the zombie company remain in a perpetual ‘closing down’ state, dropping prices to attract customers, and potentially harming other more profitable competitors.

Gareth Osborne of APA says: “I don’t normally listen to the advice of lawyers, when it comes to business strategy, entrepreneurialism or innovation but this one seems to make a good point about not hanging-on too long. Sometimes it’s better to admit reality (usually to yourself), speak to your creditors and do the ‘right thing’.

“I desperately disagree with his assertion that this could be masking the double dip recession. I think he should start looking at the over-priced burdens suffered by business; funded through business rates, corporation tax and national insurance – cut some of those and you really could make a difference.”

APA