Company liquidations are the key to finally laying them to rest
Zombies have been one of the most recognised horror tropes in the past 50 years and are arguably more popular this century than they’ve ever been.
Whether it’s the classic Dawn of the Dead series satirising consumerism to modern takes such as Shaun of the Dead and iZombie where there is little difference between people staring at their phones for hours on end and the actual undead.
The funny thing is that in business zombie companies actually exist too.
But recent developments indicate that they too might finally be facing their natural end.
What is a zombie company?
The best working definition we have of a zombie company is from author Mark Thomas. He wrote a book called The Zombie Economy which defines them as: “A zombie company is a business that is generating just enough cash to service its debts, so a bank is not obliged to pull the plug.
“The company can limp along, it can survive, but it hasn’t got enough money to invest.”
The insolvency trade body representing the industry, R3 has previously estimated that over one in ten UK companies could therefore be classed as a zombie business.
Former president Stuart Frith said: “These businesses are capable of ticking along, but growth and increased productivity is out of their reach.
“This means that thousands of UK businesses will struggle to deal with additional external or unexpected shocks which could be a problem if they were all to become insolvent at the same time.
“Additionally, you have a significant proportion of businesses (estimated at 11%) which are tying up investment and staff which could be used by more productive companies elsewhere in the economy.”
From March 2020 until 2022, insolvency figures were kept historically low due to a mixture of government support measures like the bounce back loan scheme, various grants and furloughs and the suspension of statutory demands and winding up petitions.
Now all of these have been removed and allowed, company insolvencies are reaching historically high levels. This means that many businesses that could be classed as zombie companies are no longer being kept afloat artificially.
Chris Horner, insolvency director with BusinessRescueExpert, isn’t surprised by the figures.
He said: “During the pandemic period that we’ll call 2020 to 2022, the government introduced legislation that made it virtually impossible for creditors to force a business to be wound up or liquidated thereby removing the threat of any enforcement action.
“While this was good for some, it meant that hundreds or thousands of companies that would otherwise have gone into liquidation have survived artificially.
“When the system was unlocked in April 2022, then we saw company liquidations begin to climb so much so that 2022 saw the most corporate insolvencies in any 12 month period since the records began in 1960.
“I love movies and games about zombies and the one thing you learn about them is that they move forward slowly without agency or impetus unless they meet an obstacle or are stopped in another way.
“Economic circumstances are changing now meaning it’s harder for directors of zombie firms to justify their ongoing existence.
“So taking the initiative and choosing a company liquidation through a creditors voluntary liquidation (CVL) or other methods allows them to seize control of their own destiny again and put their business to rest on their own terms – freeing them up once more to begin the next phase of their life and career.”
What can you do?
If you’re a business owner or director then nobody knows better the sense of responsibility you have.
You have to weigh your decisions and the direction of the business carefully because you ultimately have an element of control.
So it can be frustrating if you have done everything you can to help your business get back to profitability and for one reason or another it just hasn’t happened.
With inflation remaining in double figures, business rates and taxes increasing and with interest more than likely to rise again in the coming days and weeks, along with the cost of living rising almost in proportion to consumer confidence falling – economic conditions are going to get worse before they get better.
Which is why it might be the right time to change tracks and spend the rest of 2023 creating and building a new business – free from unmanageable unsecured debt.
We offer a free initial consultation to any business or director who wants to know what all their available options are.
A company liquidation might be just one practical choice available to them depending on their circumstances.
Get in touch today and find out if you can finally leave the zombies at rest for good.