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The Walking Debt: Surge of ‘Zombie Businesses’ in the UK

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The so-called "zombie business" - a term used to describe businesses only just surviving despite being in a financially difficult situation - is on the rise according to a survey of 500 UK businesses conducted by insolvency trade body R3.

The research has shown that the number of businesses only paying the interest on their debts - a classic characteristic of the zombie business - has drastically increased from 103,000 in November 2013 to 154,000 now. The number had been steadily decreasing since the highest peak in November 2012 of 160,000, making the sudden jump even more concerning.

After the 2009 recession, a number of troubled businesses were kept afloat by low interest rates, lenient creditors and sluggish recovery - this is what gave rise to the 'zombie business' phenomenon. Insolvency practitioners put this recent surge down to late payment and over-trading problems, which come alongside economic recovery.

Furthermore, the research has shown that the number of businesses currently renegotiating payment terms with creditors has nearly doubled from February 2013, rising from 74,000 to 135,000.

President of R3, Giles Frampton, said: "The first flush of growth generated plenty of cash for businesses but now some are experiencing the side-effects of growth too. Over-trading and late payment can easily put businesses with bulging order books in a position where cash flow becomes a major headache."

"Businesses will get into trouble if they're trying to run before they can walk and don't get paid quickly enough for the work they're doing. Access to new finance is still tight so businesses low on cash have limited options to give themselves some breathing room", Mr Frampton explained.

He also warned of the fact that while making the minimum payments on debts or renegotiating payment terms with creditors can keep businesses alive in the short term, it is not a safe long-term solution. Instead, it leaves businesses "in limbo" - in other words, they will still be in business, but be in the precarious situation of little chance of growth, leaving them vulnerable when interest rates begin to rise and sustained economic growth makes creditors get tougher.

It will therefore become even harder for such businesses to stay solvent. Worryingly, 100,000 business said they would not be able to cope with even a small rise in interest rates, and a further 64,000 currently struggle to pay their debts when due, which is 11,000 more than the figure in November 2013.

Contact Us - Bankruptcy & Company Insolvency Litigation Claims in the UK

Whether you wish to commence legal proceedings or challenge those that are being brought against you, our specialist insolvency team can guide you through the procedures. Further, if are worried about the costs involved, Advantage Litigation Services have the skills and expertise to help you find a way of funding commercial litigation without risking your personal finances or those of your business. Click here to contact us today or call 0800 160 1298 to see how we can help.

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