One of the biggest concerns for creditors has been the rise and rise of so called “zombie companies” – those firms which are only paying interest on their debts – instead of what they owe in full.
There might be some light at the end of the tunnel, however, according to new figures.
The proportion of UK companies which are only paying the interest on their debts has dropped to 3% in December from 5% in April 2017, according to research by R3, the insolvency and restructuring trade body.
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 ‘zombie businesses’ in June 2012. It had reached as high as 9% in November 2012 and August 2014; prior to April’s 5% it was 8% in September 2016.
R3’s research, based on interviews with 500 nationally representative businesses by BDRC, also found that other signs of acute distress have dropped to record or near-record lows.
Just 1% of UK companies report they are having to negotiate payment terms with creditors, are unable to repay debts if there was a small increase in interest rates, or are struggling to pay debts when they fall due.
R3’s December research also saw other signs of business distress fall back from a recent upward trend, with 16% of UK businesses reporting at least one of five problems (decreased profits, reduction in sales volumes, regular use of maximum overdraft, recent fall in market share, making redundancies).
In September 2017, 25% of businesses had reported one of these signs of distress, up from 20% in April 2017 and 21% in September 2016.
However, the research also found that levels of business growth remain flat and well below record highs. 55% of UK businesses report at least one sign of growth (increased sales volumes, increased profits, investing in new equipment, market share growth, business expansion) compared to the high of 69% seen in December 2015 and June 2016.
Businesses’ economic pessimism is also continuing to rise with 27% of businesses now more pessimistic than they were 3 months ago – the highest this figure has been March 2013. 40% of businesses are more optimistic than 3 months ago, but this is the lowest this figure has been since March 2013.
Likewise, 9% of businesses expect their activity to decrease in the next year, the highest this has been since December 2011.
If you suspect your creditors are the walking dead, please get in touch for confidential advice.