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‘Zombie businesses’ returning from the dead

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24th Nov 2015
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The number of businesses paying just the interest on their debts has fallen sharply, according to research by insolvency trade body R3.

The figures from R3 showed that so-called ‘zombie businesses’ fell from 154,000 in August 2014 to 69,000 now, having peaked at 160,000 in November 2012.

Commenting on the research Phillip Sykes, President of R3, said: “We are now seeing more companies able to afford to pay off the debt itself and not just the interest. This is understandable in this period of ‘non-flation’. A strong pound and lower oil prices may also be helping businesses’ balance sheets.

“The economic climate is rewriting the rules of recovery as we knew it," Sykes continued. “When interest rates dropped in 2009 it was never expected that they would remain at that level for so long but by doing so it alleviated some of the pressure on businesses and allowed them an opportunity to get their finances in order.”

However, the research also found that 77,000 businesses believe they would be unable to repay debts if interest rates increase by one percentage point or more.

Sykes added: “The low interest rates have been a great aid to businesses but they won’t last forever.

“While the amount of businesses that would be unable to repay debts has decreased by nearly a quarter since last year, it still represents a considerable number of companies who will be put in a precarious position when a rise does come.”

When the number of zombie businesses was at its highest in 2012/3, HMRC came in for criticism for prolonging the life of such companies through its Time to Pay arrangements, preventing other businesses from thriving.

However, in recent years the number of such arrangements granted by HMRC has fallen, and from the 3 August 2015 all Time to Pay arrangements have been operated under direct debit.

Contrast in outlook

The relatively rosy economic outlook outlined by R3’s figures is in stark contrast with AccountingWEB’s Bankstream accountant’s assessment, due to be released next week.

AccountingWEB members taking part in the survey outlined how confidence in their own firms’ performance has slumped over the past three months, and while the impact of regulation remained a bone of contention, the economy emerged as a major source of concern.

How’s it looking from your perspective? Do you agree with R3’s assessment or do you share the Bankstream respondent’s concerns?

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