'Walking dead' SMEs threaten economy
Feb 17 2012
Zombie companies won't die
‘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 per cent on the same period in 2010, solicitor Oliver Ward-Jones believes 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.
Ward-Jones says, ‘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.
‘These companies limp on using capital and skills that would arguably be better placed in a growing business.’
The solicitor adds that the zombie company remains in a perpetual ‘closing down’ sale, dropping prices to attract customers, and potentially harming otherwise more profitable competitors.
Ward-Jones says that the zombies do not have a future and by protecting these businesses, the banks are threatening to stunt long-term growth.
‘Given the current trend, there is a real danger of Britain becoming a ‘zombie economy’, with the capital no longer being allocated in growing businesses and no new capital being invested,’ he warns.
‘Ultimately, some of these companies are beyond resuscitation and, as a result, need to be wound up by a creditor. However some are viable businesses which need investment and potentially new management to move forward.’
Ward-Jones concludes that while these companies continue to exist no upturn is forthcoming, and unless some ‘decisive action’ is taken then a market recovery cannot and will not take place.
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