'Zombie' companies dying out, according to R3

THE number of businesses just paying the interest on their debts – a key characteristic of ‘zombie businesses’ – has plummeted, research by trade body R3 has found.

According to R3, the number of businesses in this position has fallen to 69,000 from 154,000 in August 2014 – the lowest level since the survey began in June 2012 – while fewer businesses have needed to negotiate payment terms with creditors.

Phillip Sykes, president of R3 [pictured], said more companies are able to afford to pay off the debt itself and not just the interest as a result of zero inflation, a strong pound and lower oil prices.

“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,” he said.

A combination of low interest rates and bank forbearance has contributed to a difficult market for insolvency practitioners with appointments thin on the ground

Almost 80,000 businesses said they would be unable to repay debts if interest rates increase by a one percentage point or more, while 55,000 businesses said they struggle to pay debts when they fall due, down from 64,000.

“The low interest rates have been a great aid to businesses but they won’t last forever,” Sykes said. “While the amount of businesses that would be unable to repay debts has decreased by nearly a quarter since last year, it still represents a considerable number of companies who will be put in a precarious position when a rise does come.”