New research claims that 5% of businesses in the North of England are only able to pay the interest on their debts, but not reduce the debt itself.
This equates to 22,000 ‘zombie businesses’ in the North – according to research by R3, the insolvency trade body.
R3 measured four ‘zombie indicators’ including just being able to pay the interest on debts, without reducing the debt itself and, in the event of a rise in interest rates, being unable to pay the debt at all.
Struggling to pay debts when they fall due and having to negotiate payment terms with suppliers are also cited as ‘zombie’ traits.
Robert Adamson (pictured above), chair of R3 in Yorkshire and partner at Mazars, says: “One in 20, of Northern businesses are only able to pay the interest on their debts but not reduce the debt itself. While this is lower than the national average of 8%, it is still a staggering number.
“The implication here is that these businesses have been ‘running on empty’ for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer.
“Essentially, a zombie business is one that is on the edge of insolvency but has been holding on, often for a prolonged period of time. An insolvent business is one that is unable to pay its debts when they fall due, or a business that has debts greater than the value of its assets.”
The research also shows that in the last three months, 20% of Northern businesses have seen a fall in their market share; 18% regularly used the maximum overdraft facility; and 7% have had to make redundancies.
However, there are some encouraging signs that businesses in the North are faring slightly better than those in other parts of the country. In the last three months, 50% of Northern businesses reported having invested in new equipment, compared with 36% nationally; 33% had seen an increase in sales against the national average of 29%; and 32% had experienced increased profits (26% nationally).
Throughout the UK, the retail sector featured most prominently across three out of the four zombie business indicators. It has the highest proportion of businesses that will be unable to pay their debts in the event of a rise in interest rates - 18%, which equates to 31,000 businesses.
However, the construction sector has the largest proportion of businesses that are only able to pay the interest on their debts - 16%, which equates to 37,000 businesses.