‘Zombie’ Firms Are Accounting For The Majority of Insolvencies

By David Shirt

So-called ‘zombie’ firms are accounting for the majority of companies going bust in the construction and manufacturing sector – and according to a leading restructuring lawyer, the trend is likely to continue throughout 2013.

The warning from Andrew Walker at Irwin Mitchell follows the release of the latest insolvency statistics and analysis by PWC.

Here it was recently reported that there was a 17% decrease in the number of insolvencies within the manufacturing sector across Yorkshire within the first quarter of the year. During January, February and March there were 52 cases compared to 63 in the final quarter of 2012. In construction, there was a fall from 105 to 77 in Q1.

Andrew Walker, a restructuring Partner at the Leeds office of Irwin Mitchell, said:  “Although we should welcome these latest figures, it’s important not to read too much into them. It is only a snapshot and it’s certainly worth bearing in mind that the majority of insolvencies in the manufacturing and construction sectors in Yorkshire are currently ‘zombie’ companies.

“I would expect numbers to fall as gradually those companies are removed from the economy leaving the sector fitter and leaner than it was before 2008.”

Zombie companies are only able to pay the interest on their debt but not the debt itself. According to trade body R3, there are now 16,000 'zombie' businesses in Yorkshire, the Humber and the North East – accounting for 9 per cent of all businesses in the region.