South East: ‘Zombie businesses’ return to the land of the living, says R3

The number of businesses just paying the interest on their debts in the South East – a key characteristic of ‘zombie businesses’ – has dropped from 23,000 in August 2014 to 15,000 now, according to research by the Southern Region Thames Valley Group of R3.

Now just 5% of businesses in the South East find themselves in this position, compared to 9% last year.

Julia Branson, who runs Branson Restructuring in Reading and is also a partner at James Cowper Insolvency Services, said: "There has been a significant decrease in the number of ‘zombie businesses’ since we began our research.

“Encouragingly, the findings suggest that businesses are experiencing greater profitability. 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-inflation’. 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. 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.”

This trend has continued across the whole country, with the number of businesses just paying the interest on their debts plummeting to 69,000 from 154,000. This is the lowest number of businesses in this position since the survey began in June 2012, having peaked at 160,000 in November 2012.

According to the R3/BDRC research around 21,000 businesses in the South East say they have to negotiate payment terms with creditors, down from 25,000 last year.

Branson, a member of the Southern Region Thames Valley Group of R3, continued: “Creditor forbearance has been a notable consequence of the last recession. Creditors, in particular banks, remain under pressure to show that they are supporting customers by providing them with greater flexibility in terms of their repayment.”

• The Southern Region Thames Valley Group of R3 brings together insolvency experts from accountancy, legal and specialist recovery firms across Reading, Newbury, Oxford, Berkshire and Surrey.