'Zombie Businesses' Driving The Rise In Business Failures

The high number of business failures revealed by today’s statistics released by Begbies Traynor can be attributed to the prevalence of 'zombie businesses', according to Andrew Walker, partner and Head of Restructuring and Insolvency at Irwin Mitchell.

The statistics indicate that the number of companies facing insolvency this year is on track to reach its highest level since the depths of the financial crisis in 2009. Insolvencies have risen by 10% in the three months leading up to the end of September, as reported by the official figures for England and Wales.

Of particular concern is the significant rise in the number of firms at risk of going bust. Begbies Traynor reports a staggering 25% increase in companies experiencing "critical financial distress" during the same period. These businesses are defined as having county court judgments exceeding £5,000 against them, often acting as a precursor to insolvency.

The presence of zombie businesses further exacerbates the situation. These businesses, which managed to survive the challenging economic conditions of recent years, are now struggling to sustain their operations. Kept alive through various means, such as low-interest rates and lenient creditor attitudes, these zombie businesses are now contributing to the high number of business failures.

Expert Opinion

“The high number of business failures highlighted in the latest statistics is a cause for concern. It is crucial to acknowledge the role played by zombie businesses in driving these failures. These businesses have managed to survive in a limbo state, but they are now facing the harsh realities of the current economic climate, with the government pandemic financial support now requiring repayment, adding an additional burden to cashflow." Andrew Walker, Partner and Head of Restructuring and Insolvency at Irwin Mitchell 

In light of these challenges, Irwin Mitchell advises businesses to take proactive steps to prepare for the tough economic climate and enhance their resilience.

Expert Opinion

"It is crucial for businesses to confront the realities of the current economic climate and take proactive measures to safeguard their financial health. This includes conducting comprehensive assessments of their financial position, identifying and addressing any potential vulnerabilities, and implementing robust financial planning and risk management strategies." Andrew Walker, Partner and Head of Restructuring and Insolvency at Irwin Mitchell