Return of zombie finance and ghost companies

Posted: 26/10/2021

It’s autumn and time to put that box-set viewing on pause and perhaps instead review the likely direction of travel of the “zombie” army of distressed businesses. How do you avoid contagion?

Unless you hibernated during the various lockdowns you will not have failed to notice that the impact of Brexit, the Covid-19 pandemic, and lockdown measures took their toll on spending, incomes and jobs, tipping the UK economy into recession after negative growth in the first two quarters of 2020.

In May 2021, reported Government spending in support measures was circa £170 billion, with an estimated lifetime cost of £370 billion. While the Bank of England has kept its base rate at 0.10 per cent since the beginning of the pandemic (not least to help keep down interest payments on government debt) there are a number of inflationary pressures. This means that a rise by next year is expected and the Government is keen to wean the economy off increasingly expensive state support.  

The impact of Covid-19 and Brexit on the UK economy remains uncertain. We have seen the UK enter its worst recession since the 1920s in the last year but predictions are that recovery from the pandemic may still come at speed as long as there is enough clean cheap energy and lorry drivers.

A key factor in this will be the impact that the run off of the Government support programmes will have on businesses and jobs. The support of the Government – along with significant liquidity in the financial markets – has allowed many “zombie” businesses to survive this far.

According to the Insolvency Service's Insolvency Statistics report for October to December 2020, there were 12,557 insolvencies in 2020, a 27 per cent decrease on 2019 and the lowest annual level of insolvencies since 1989. The results in the Insolvency Service's Insolvency Statistics report for January to March 2021 show company insolvencies continued to remain lower than pre-pandemic levels. While certain sectors have been hit hard (bricks and mortar retail, travel etc) others such as professional service have stepped up and grown.

Going forward, we expect to see insolvency appointments exponentially increase from the next quarter given the removal as of 1 October 2021 of most of the temporary restrictions to present substantial non rent-related winding up petitions.

Therefore, if you are owed a debt of more than £10,000 (non rent); have received no sensible settlement proposals within 21 days; and the debtor honestly has no real defence; then what are you waiting for? Get some advice first on presenting a winding up petition as this will help you to avoid that autumn “slasher movie” as the courts will be careful to protect against creditors who do not adhere to the new but simplified rules.

It is time to recover cash from the zombies before they disappear and all you are left with is to finish watching that box set.  

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