The march of the zombies across the region appears to be slowing to a crawl, according to new research by insolvency trade body R3.According to R3’s latest Business Distress Index (BDI), which tracks levels of growth and distress in companies across the UK, the number of ‘zombie businesses’ across the North East, Yorkshire and Humberside is staying low.
The ’zombie business’ phenomenon emerged after the 2009 recession, when businesses that might have been expected to fail were kept afloat by a combination of low interest rates, lenient creditors, and a sluggish recovery.
‘Zombie businesses’ are classified as those only able to pay the interest on debts, and not the debt itself, and in the North East, Yorkshire and Humberside only six per cent of businesses are now in this position, while just five per cent are struggling to pay debts when they fall due.
The proportion of regional businesses which are having to negotiate payment terms with suppliers is now just six per cent, while only five per cent believe that, in the event of a rise in interest rates, the business will be unable to pay its debt at all.
On the flipside of this trend, 62% of firms in the North East, Yorkshire and Humberside are reporting at least one indicator of growth. Just under half (45%) of firms say they’ve recently seen an increase in their volume of sales, while a third (33%) say they’re experiencing increased profits and a similar figure (31%) are investing in new equipment.
Around one in five firms (19%) say they are growing, whether geographically, through recruitment or by moving into new areas of operations, while 18% say they have seen a growth in market share.
Across the UK, the number of businesses just paying the interest on their debts has plummeted from 154,000 in August 2014 to 69,000 now, which is the lowest number of businesses in this position that R3 has seen since it first began to research this area in June 2012.
Allan Kelly, chair of R3 in the North East and a partner with RSM, says: “There had been a dramatic decrease in the number of ‘zombie businesses’ since we began our research, and it’s encouraging to see the perceptions of an improving regional economy being borne out by our figures on indicators of business growth and a reduction in the number of ‘zombies’.
“The economic climate is rewriting the rules of recovery as we knew it. When interest rates dropped in 2009, it was never expected that they would remain at that level for so long but by doing so it alleviated some of the pressure on businesses. This has been a great aid to businesses, but they won’t last forever, and businesses do need to be planning now for how they would manage an interest rate rise when it inevitably occurs.
“Additionally, creditors, in particular funders and HMRC, continue to show forbearance and support of customers through problems if possible, and it has allowed many of them an opportunity to stabilise or improve their position to get their finances in order.
“Even in the present improving environment sectoral issues still exist which can be challenging meaning businesses can still run into difficulties, and taking proactive advice and action to address them is the best way for management teams to stop their companies joining the ranks of the undead.”