Phil Harris

The end of days are coming for zombie businesses

The governor Mark Carney is still maintaining that the base rate is unlikely to rise anytime soon (previous predictions were 2015/16), despite the sharp drop in UK unemployment last week. In the same week however, the Bank said it would no longer use employment as the sole indicator for rate setting, but rather a wider range of measures.

The above statement is a bit cryptic and one that should send alarm bells ringing to zombie businesses (see Sue’s blog of 25 August 2013). These businesses are barely surviving with the current low rates, the future does not look bright for them if the much discussed increase in rates is just around the corner rather than a couple of years away as initially thought.

According to the latest research from insolvency trade body R3, zombie business insolvencies have been on a consistent decline from 160,000 in November 2012 to 103,000 in November 2013.

This would seem to indicate that some of these zombie businesses, rather than mindlessly shuffling along, have taken proactive steps to negotiate with their creditors and reduce overheads in order to return back to relative fiscal health in preparation for the impending interest rate increase.

It is not always possible to negotiate mutually beneficial terms with your creditors (who may also be struggling) however and those businesses that have not been able to, are amongst the large proportion of businesses (34,000 in August 2013 to 96,000 in November 2013) that have moved from “limping along but ok” to, “the end of days” when the Bank finally increases the interest rate.

We would urge businesses to be proactive, seek advice and if the writing is on the wall take action now rather than wait for the inevitable.