Meet the Zombie company: How state intervention created a monster

Zombie hand wearing a suit sleeve

State intervention has created a raft of zombie companies - Credit: Getty/Archant

Strange things are happening in the business world thanks to the pandemic, and some firms have been left in suspended animation. But, asks Eleanor Pringle, what happens next?  

For a year that has been horrific for businesses, there has been a surprising lack of companies going bust.  

Company insolvency levels are at their lowest levels in almost three decades, despite the fact that few firms could even open their doors.  

What on earth is gong on? Behold the rise of the zombie firm.  

These are companies which have limped through the pandemic propped up on crisis financial support: furlough, bounce back loans, grants.


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Often they were in dire straits before the virus hit – and probably would not have survived this far but for government bailouts.  

These are the businesses which have just enough cashflow to operate but not enough to pay off their debts. 

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For some of these now comatosed companies the pandemic meant a previously decent business was shattered – by no means all of them were struggling as 2019 turned in 2020 and Covid began its grim march to our shores.  

UK insolvencies since the onset of the pandemic

UK insolvencies since the onset of the pandemic - Credit: Insolvency Service/Archant

Lee Green is a partner at accountancy firm Larking Gowen – which has offices in Norwich and Ipswich – and works with zombie firms in insolvency and recovery.  

“We first started seeing zombie companies coming to the fore three or four years ago because interest rates were so low. It was easy to keep your business going on debt,” he said.  

“We’re definitely seeing a similar thing here. We know business is struggling and yet when you speak to lawyers and insolvency practitioners they’re all pretty quiet.  

“That’s because government support – particularly furlough – is enabling businesses to keep operating without turning over any profit.” 

The illusion will shatter though, he said, towards the end of the year.  

“We’re already getting calls from people asking when they should wind up. They know furlough is coming to an end in September and they know they won’t survive without it. So I think we’ll see the first wave towards the end of this year. “Then the second spike, which I suspect will be early next year, will be the businesses which thought they could return to profitability but haven’t been able to because of the changes in the market since March 2020. They won’t even necessarily know at this stage.” 

He added that he believes the travel sector will suffer some of the greatest losses: “Looking at the year they’ve had and the longer-term vision, I do think travel agents will face a tough time. Even if British people can travel we still have to look at the vaccine rollout in the rest of the world, and there are a lot of countries which are behind where we are.” 

And there are no winners in the collapse of a zombie scenario, he said: “No one comes out of this well. Trade creditors especially stand to lose a lot more than they did previously because of changes to insolvency law.  

Debt as a percentage of GDP graph

Debt as a percentage of GDP - Credit: Archant/ONS

“Previously HMRC wasn’t a preferential creditor – so PAYE and VAT wouldn’t be paid out ahead of trade credit, but that has since changed, so there’s frequently less in the pot for them. 

“On top of this, more often than not we’re seeing businesses with diminished assets. That’s either because goodwill over time has eroded, or they’ve tried to raise credit against their assets, and as a result the value of their assets that we can sell to offset the debt is also reduced.” 

The key advice he had in such a situation was to seek advice as early as possible: “If you’re a boss looking at your company and thinking you need to raise more cash, do not put yourself at greater risk.  

“Often we’re seeing people putting personal funds into the business to try and see it through and it’s making no difference. Founders cannot bury their head in the sand and try and muddle through – it just makes them even more vulnerable. They should seek advice from professional services to see what can be done.” 

And there are zombie companies that will sputter back to life, said Tim Nicholson, a partner in corporate finance at KPMG.  

“There are going to be winners and losers coming out of this pandemic. Businesses need to demonstrate that they’re winners by presenting clear and credible plans to stakeholders which will make a meaningful difference in their company,” he said.

“The support these companies need to survive is multi-dimensional. Firstly, and depending on the sector, there needs to be a tapering of support. There is no one size that will fit all and clearly different sectors will need different and ongoing levels of support.  

“The second is that businesses have access to raise the right capital from the right sources. Thirdly, there’s the things businesses can do for themselves and that is to have a very clear plan. They need to outline the efficiencies of the business and what they can achieve with the right investment strategies.” 

And, he added, the outlook is not as bad is it may appear.  

“Clearly we’ve been through a big shock – but what we need to look at now is the impact of the outwards trajectory. So far what we are seeing is that the survival of companies is above what we anticipated at the outset.

“Moreover, with great risk comes huge opportunity, and there will be winners as well as losers in every sector.” 

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