The term 'zombie company' is one that has been largely
coined by the media in recent years, but it
does do a reasonably good job of describing the state some
companies can find themselves in. A zombie company is one which is
neither alive nor dead. In fact, like a zombie, it shows many of
the signs of operating like a normal business – it's not
until you look a little closer that you find all is not quite as it
What is a zombie company?
A zombie company is a business that continues to operate as
normal by trading and running its operations but it has substantial
debts that leave it unable to expand or grow. By only ever paying
the interest on its debts rather than any of the capital sum, the
situation shows little sign of improving. The company exists in a
state of stagnation, as it is unable to make a profit to start
paying off its debts, but it is not in such trouble that it faces
closure. It also does not have the money to hire new employees to
kick-start growth, but cannot afford to make any redundancies.
Over the past couple of years the number of zombie companies has fallen, but
those that linger are still causing problems for the UK economy.
Experts argue that zombie companies take up space in the
marketplace and prevent new, more productive companies from
entering markets and driving growth in the economy.
Many zombie companies have managed to survive thanks to the
record low interest rates that have been in place since 2009.
Although any rate rise still looks a little way off, when it
eventually comes, it could spell the end for many businesses
existing in this state.
Potential causes of zombie companies
– Interest rates – One of the
leading causes of zombie companies in the past has been high
interest rates. This can make existing debts so expensive that
companies can only afford to repay the interest on the debt. The
current record low interest rates make this much less of a
– The banks – If banks and other
lenders fear a company could become insolvent, they will look to
retrieve as much of the debt as possible. They will often try to
avoid formal insolvency procedures like administration and
liquidation, which often provide little creditor return. Instead,
they will try to keep the firm trading in the hope it will make a
– HMRC – HMRC tends to be more
tolerant of businesses it knows to be in debt but are doing what
they can to repay the money they owe. In this case, HMRC can be
open to negotiations to repay the debt, but the
repayments can force a company into this state of limbo.
Keep your business alive and kicking
If you start to feel like your liabilities are becoming
unmanageable, there are a few things you can do to avoid the zombie
– Reduce the debt – Firstly, you
should look at ways to try and reduce the company's debt. You
could sell an asset to raise the capital to repay a proportion of
the debt, or look at ways to reduce the company's costs. This
could include attempting to renegotiate rental costs or reverting
to the business's core and most profitable activity.
– Refinance the debt – There are
likely to be cheaper debt options out there allowing you to make
considerable savings on the cost of your interest repayments. A
wide range of different lenders have entered the market in recent
years to make up for the shortfall in mainstream lending.
– Rescue the company – A turnaround
practitioner registered with the TMA will be able to help you consider and
arrange company rescue options such as a Time to Pay arrangement
with HMRC. This can ease the financial pressure on your business by
repaying VAT and PAYE debt in affordable monthly instalments.
A company voluntary arrangement (CVA) is another
potential route you can take to bring your company back to the land
of the living. This is a formal deal between you and your creditors
to repay the money you owe over an agreed period of time, usually
three to five years. You can continue to trade during this
How can we help?
For more information about any of the options listed above,
please get in touch with the team here at
companydebt.com. We offer no-obligation, cost-free business debt
advice to prevent your business joining the ranks of the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Witnesses can, in various circumstances, be subpoenaed by the Courts of overseas jurisdictions to attend to give evidence by way of depositions within that jurisdiction. So why not take that one step further and ask a foreign court to subpoena the witness to give evidence by live satellite video link to a Court in London? This would be the next best thing to having the witness present in Court. Indeed, the Commercial Court is increasingly amenable to evidence being given in this way (albeit on a
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).