Could zombie companies eat UK recovery?
As non-essential shops and venues reopen their doors, many are only able to do so thanks to Government support systems propping them up. During the pandemic insolvencies actually fell by a third, as companies who would otherwise have gone to the wall have been kept afloat. But what will happen to these ‘zombie companies’ as help is removed? Will the pent-up demand save the UK economy, or are ailing companies about to get crushed under their debt pile?
Zombie companies: the walking debt
More than 17,500 shops have already closed during the pandemic. The total of business casualties remains unknown. According to the Local Data Company (LDC), on average, 48 non-essential shops, restaurants and other leisure and hospitality venues closed permanently every day.
Yet, with the grand ‘re-opening’ of stores the level of optimism among business owners is at a record high. Spurred by expectations of the incoming British consumers’ shopping spree. For some businesses, it is the only hope to turn their fortunes around as they took advantage of low-interest rates and government loan schemes to get out of the piling debt.
However, when the state support starts to withdraw, economists predict a pick-up in defaults.
Survival of the fittest
While it’s been difficult for landlords to forfeit leases and creditors to issue statutory demands, failing businesses avoided engaging with restructuring professionals, despite feeling fatigued from threading the waters. However, the earlier they seek professional help, the greater the chances of business rescue.
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