There are now 17,000 zombie businesses in the South East, 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 down from 37,000 businesses in July.
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 also shows that the South East is faring better than many other regions in terms of the number of zombie businesses. While there are 6% in this region, other areas report levels of 12% (Yorkshire/Humberside), 17% (Greater London) and 34% (Northern Ireland).
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: “It is encouraging for businesses in the South East to see the number of zombie businesses decreasing in such a short period of time. It certainly lifts the spirits against a backdrop of gloomier economic news. For those businesses who still remain in the ‘zombie’ category, I would urge seeking professional advice. As the figures have proven, they have a chance to return to life.”
