Zombie business’ numbers drop to record low
How do you kill a Zombie company? By having an interest rate rise of course!
Zombie business’ numbers drop to record low.
In November 2015 we reported that Zombie companies-those businesses that can just about pay the interest on their bank debts, but little else, had seen a dramatic decline [much to the chagrin of us Insolvency Practitioners].
Well, the decline continues, according to research commissioned by our trade association R3. Figures published this week, based upon findings by international market research company BDRC, have revealed that the proportion of businesses only paying interest on their debts-equivalent to 49,000 firms-is now the lowest it has been since R3 began tracking the Zombies in June 2012. Here are the trend percentages:
November 2012: 9%
August 2014: 9%
November 2015: 8%
September 2016: 8%
April 2017: 5%
December 2017: 3%
Back in November 2015, the same research model revealed that some 77,000 businesses believed that they would be unable to repay debts if interest rates increased by one percentage point or more. Well the 0.25% interest rate rise in November 2017 appears to have had absolutely no effect on increasing Zombie numbers, in fact, perversely, it could be said it has resulted in a reduction in those businesses that are just about hanging on.
The reasons behind this decline are a little opaque. Despite all the usual suspects [Brexit, falling value in sterling, poor productivity, oh and did I mention Brexit], the UK economy has still continued to grow and therefore, even hitherto poorly performing businesses, have had a chance to return from the living-dead.
So, is this the end of the Zombie business phenomenon? The world economy is now nearly 10 years away from the game-changing events of the banking collapse. Trillions [of whatever currency you care to name] has been pumped into world markets by the leading Central Banks and as the USA, slowly but surely, starts to wean itself off the teat of Quantitative Easing and gradually raises the rate of interest, the rest of the world will follow and paying that interest bill on loans will become harder and harder. At the moment, we have Vampire businesses that gorge themselves on the blood of cheap credit. I am sure our old friend the Zombie will be back, walking ever so slowly, and yet gaining upon us with each step.