6 Jun 2012

"Zombie companies" holding back economic recovery

Companies are being kept afloat to the detriment of the UK economy, according to a report from Ernst & Young

A new report from the accountancy firm says that the financial crisis has created a business environment where it is “too difficult to fail” and “financially undead” companies continue to operate, holding back economic recovery.

The report said that an expected jump in the number of companies falling into administration had not materialized, even with a 42% increase in profit warnings among listed companies last year.

Insolvency rates remain below the historic average during a recession, even with a few high profile business failures including Clinton Cards and Game Group.

E&Y attributes the mismatch to a change in attitude among the government and creditors, which have generally allowed businesses more breathing space.

Alan Hudson, E&Y head of restructuring in the UK, said while ‘zombie companies’ were still operating, they were taking market share from viable companies: "It is a very unsatisfactory environment that has become so during the crisis which began in 2007-08."

Insolvency group R3 said that around 30% are regularly reliant on the maximum overdraft facility to operate. 


Helen Roxburgh