There was a sharp rise in the number of businesses going into administration during the second quarter which suggests that the so-called zombie companies are urgently seeking to address their stressed balance sheets but, that said, the waters continue to be murky.
A rise in administrations after a recessionary period normally indicates a recovery being around the corner. However, companies that survive through a recession, but remain operationally and financially under stress, work on paper thin margins but cannot invest in stock. Therefore, when an economy or a market picks up, stressed businesses often fail as there is insufficient working capital to meet demand.
Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers, Irwin Insolvency, said “Currently zombie companies are in a danger zone as the day of reckoning may be nigh. Many have yet to enter into formal insolvency procedures but in the interim they are struggling to access credit facilities. There may well be low interest rates and support schemes available but this scenario is unlikely to last ad infinitum. When all is said and done, an unviable business now is likely to be an unviable business next year and the year after. It really is time for lenders to pull the plug.”
Some businesses may well have received the wake-up call early and will make the necessary changes towards survival in the longer term. For the rest, that is another story altogether.