The number of ‘zombie businesses’ in the South East has dropped but thousands of businesses are now at risk of failure as lenders are forced to make some tough decisions in coming months, local insolvency experts have warned.
According to research by R3, the insolvency trade body, 25,000 companies in the South East are now classed as ‘zombie businesses’ – those that are only able to pay the interest on their debts, not the debts themselves. The figure represents nine per cent of all businesses in the region, down from 14% last year.
But the positive news has been tempered with a stark warning to those businesses hanging on by a thread as members of R3’s Southern Committee say time may be fast approaching for lenders to decide which businesses to continue to support and which to let go.
James Stares, chairman of the Southern Committee of R3 and director at Grant Thornton in Southampton, said: “The figures follow the national trend of fewer ‘zombie businesses’ and it is promising to see that businesses in the South East are doing better than most when it comes to paying their debts too. Here, only one per cent of firms struggle to pay their debts when they fall due, that’s one of the lowest figure of all UK regions. That percentage has also decreased from last year, meaning businesses are getting to grips with their borrowings.”
However, James warns that while the research painted a better picture than this time last year, some elements give cause for concern.
“It is worrying to see that some 10 per cent of businesses in the region are having to negotiate their payment terms with creditors. This should ring alarm bells. The time may be fast approaching for lenders, including suppliers and banks, to decide which businesses to continue to support and which to let go.”
Mike Pavitt, vice chairman of the Southern Committee of R3 and lead insolvency partner at Paris Smith LLP in Southampton, explained: “Lenders face difficult choices. The prolonged period of low interest rates and government support schemes has made it hard to distinguish between businesses that are struggling but viable and those that have no future.”
Both James and Mike stress that not every business in distress is at risk of failure and R3’s advice to any businesses hearing the alarm bells of financial distress is to contact an insolvency practitioner at the earliest opportunity – they may be able to save the business.
