Mail on Sunday article on Zombie Firms

1 August 2010

As usual Dan Atkinson of the Mail on Sunday (MOS) is on the money with a good article about the so called "Zombie" firms being supported by banks seeking to avoid impairments and the HMRC Time to Pay Scheme.

www.thisismoney.co.uk/money/article-1700363/Zombie-firms-rising-again-thanks-to-rescue-plans.html

Atkinson writes:

"Given there have been 300,000 separate arrangements, that means on average half of the businesses concerned have been back to the Revenue for more. It is here the zombies may be lurking. While the banks are accused of failing to lend new money to small companies, it appears that they are also failing to foreclose on some stragglers in their portfolios for fear of having to crystalise unperforming loans in their own books. This is also keeping alive some of the walking dead."

On this blog and internally at KSA we have had this discussion for some 18 months. What would the true level of company insolvencies be if the two issues above, coupled with historically low interest rates, were not in place?

If a company has Zombie like tendencies, it is vital that the directors have a plan B. What if the Time to Pay deal cannot be kept up to terms? What if HMRC rip up that 12 month deal and demand payment in 7 days? This change of mind, from HMRC, is something which we are anecdotally hearing more and more.

Cost cutting, Company Voluntary Arrangements, refinancing, pre-pack administration or voluntary liquidation are the main alternative options.