There are now 8,000 zombie businesses in the South West, that is businesses only able to pay the interest on their debt but not the debt itself, according to research by insolvency trade body R3.
This is a staggering 166% increase on July, when 3,000 business owners in the South West said they were only servicing their interest. This follows a gloomy pronouncement last week from the Governor of the Bank of England, Sir Mervyn King, that Britain, “may be in for a period of persistently low growth.”
The research by R3, however, shows that the South West is faring better than many other regions in terms of the number of zombie businesses. It has the second lowest percentage in the country (beaten only by the West Midlands). Northern Ireland has the highest percentage as 34% of businesses report that they are only able to pay the interest on their debts but not reduce the debt itself.
Nick Keitley, Chairman of R3’s Southern Committee and Partner at Bond Pearce in Southampton, comments: “The phrase ‘zombie business’ has been bandied around quite freely and looking at companies that can only service the interest they owe, but not the debt itself, is a practical definition of this term. I would add that the phrase also extends to those companies who are currently over-geared and cannot pay back the debt in full. We know that banks are displaying greater forbearance on existing debt, but when a business cannot get extra lending it will be unable to expand. Others would argue that this stagnation ties up capital that could be used for other, healthier businesses.”
Nick Keitley continues: “While it is surely good news that the South West has one of the lowest percentage of ‘zombie businesses’ in the UK, it is worrying that the percentage has increased so rapidly in such a short space of time since the summer. I would urge any business that is merely servicing debt over a sustained period of time to consider seeking professional advice.”
