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Zombie company?

The rise of so-called zombie companies is, to some extent, a consequence of the UK’s current record low interest rates.

Struggling companies can just about afford the interest payments on their loans, but not much more. There are zombie households, too - those on interest-only mortgages, yet unable to pay off the loan itself.

“A zombie company is one which is generating just about enough cash to service its debt, so the bank is not obliged to pull the plug on the loan,” explains Mark Thomas, business strategy expert at PA Consulting and author of The Zombie Economy.

“The company can limp along, it can survive, but it hasn’t got enough money to invest.”

According to R3, the industry group that represents insolvency practitioners, there are an estimated 146,000 zombie businesses in the UK - and, says R3, that figure is on the rise.

And according to experts around a third of these - approaching 50,000 - could be doomed to failure if interest rates go up:

“They could pull through, but urgent attention is needed to avoid the catastrophe of multiple failures and tens of thousands of job losses,” says Christine Elliott, chief executive of the Institute for Turnaround, which represents financial professionals brought in to help ailing companies.

- ‘Zombie’ companies eating away at economic growth, BBC.com, November 13, 2017.

3. The persistence of zero percent interest rates has allowed fully-fledged zombie companies to become a fixture of the US economy which is now home to ‘anaemic’ corporate investment.