0800 644 6080
Call FREE from Landline and Mobile
Est. 1989

What is a Zombie Company and can it begin trading again?

Affected by Covid-19? Immediate Rescue Or Closure Options Available

FAST Free Director Advice & Support, With 78 offices Nationwide our Licensed Insolvency Practitioners can Help Today.

Updated: 28th March 2020

The term ‘zombie company’ originally referred to the large Japanese corporations that were bailed out by their government in the 1990s. It was widely used again during the last global recession, but what exactly does it mean and what should you do if you run a zombie company?

What is a zombie company?

When a company is unable to grow due to high levels of debt, but isn’t actually insolvent and can still service its debt, it’s referred to as a zombie company. Figuratively, it’s trapped between life and death, unable to move on but unwilling to close down.

A zombie company uses the cash it generates to pay the interest on its debts so it’s unlikely that lenders will enforce liquidation as long as this continues. Similarly, if directors have provided personal guarantees for lending, they won’t want the company to enter voluntary liquidation as they’ll become personally liable for any outstanding amounts.

What causes zombie companies?

Three main elements can create a zombie company:

Low interest rates

The historically low and stable interest rates we’ve seen for many years now enable zombie companies to service their debt and continue in business. If interest rates rise in the future, however, there’s likely to be a significant rise in the number of these companies experiencing financial distress.

Banks and other lenders

As long as lenders receive interest on their debt, they’ll be reluctant to take action against zombie companies as they’re likely to receive lower returns if these businesses enter administration or liquidation.

HMRC

HMRC’s focus in recent years has been on tackling deliberate tax avoidance and tax evasion, so if they know a company isn’t deliberately refusing to pay, they may be more willing to negotiate extra time rather than forcing liquidation.

 
Logo
  • Negotiating with HMRC for 35 Years
  • 1000’s Successful TTP Arrangements
  • Full Support from Start to Finish
Visit Time To Pay Experts
Expert HMRC Time To Pay Support
60 Second Online Assessment Available
Logo

Why are zombie companies a problem?

An excessive number of zombie companies negatively affect the economy by causing stagnation. They use up resources that new businesses, or existing companies that are flourishing, could benefit from - space to trade on the high street, for example, or talented staff.

If yours is a zombie company you’re still in business but also in a perilous and vulnerable position. So what can you do to break the zombie stronghold and begin to trade again with purpose?

Enabling your zombie company to trade again

Alternative finance

As the key cause of ‘zombie’ status in business is lack of cash, obtaining a suitable alternative source of finance will boost working capital and allow you to trade again purposefully, rather than simply treading water.

There’s a wide range of funding options that don’t involve the banks, including invoice finance, asset-based funding, and merchant cash advances if you’re in retail. All are quick to access compared with bank loans, and can provide you either with a cash lump sum or regular monthly cash injections.

HMRC Time to Pay arrangement (TTP)

A Time to Pay arrangement with HMRC offers you extra time to pay your arrears, although you’ll still need to keep up with ongoing tax liabilities. You’ll have to present a strong case to HMRC when applying, but also make sure you can afford the amounts you’re proposing over the full term, as if you fail to make a payment they’re likely to wind the company up.

Company Voluntary Arrangement (CVA)

If the company is viable for the long-term, a CVA may be a suitable way to trade your way out of financial stagnation and start to prosper again. It’s a formal insolvency procedure that’s administered by a licensed insolvency practitioner (IP), and their initial assessment will determine whether the procedure is appropriate in your case.

One of the key benefits of a Company Voluntary Arrangement is that creditors can’t pursue your company for repayment as long as you adhere to the terms and conditions. Additional interest and charges are also stopped to allow you to repay as much of the existing amount as possible.

If your company is experiencing financial difficulty or is already a zombie company, our expert team at Real Business Rescue can provide the reliable advice you need. Please call to arrange a free same-day meeting with one of our licensed insolvency practitioners – we work from a wide network of offices around the country.

Jonathan Munnery

Partner

0800 644 6080
Director Support - Business suffering from Cash-Flow Problems?
If your company is financially distressed, we also offer the below services:
Business debt recovery

  • Recover Unpaid Invoices of £5k+
  • Expert Credit Control Services
  • Stop Late Payers & Bad Debts
Visit Site
Time to pay experts

  • Get Breathing Space with HMRC
  • Support with Business Tax Arrears
  • 35 Years HMRC Negotiation
Visit Site
UK Business Finance

  • Rejected for a CBILS Loan?
  • Get Emergency Business Funding
  • Supporting 1000+ UK Companies
Visit Site
Who we help
  • Company Directors
  • Finance Directors
  • Sole Traders
  • Accountants
  • Small Businesses
  • Large Businesses
  • Partnerships
Contact our team
Jonathan Munnery
Gillian Sayburn
Julie Palmer
Processing...
or Find your Nearest Office

Here at Real Business Rescue we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY

Business Rescue Advice for Directors
Free Guide for Limited Company Directors
Business Rescue Advice for Directors
  • How to manage company cash flow problems
  • Advice on dealing with HMRC
  • Understanding rescue and closure options
  • And much more...
Free Guide Download
Desling with your Insolvent Clients
Business Rescue Guide for Accountants
Dealing with your Insolvent Clients
  • Helping you advise insolvent clients
  • Spotting signs of client distress
  • Exploring business rescue options
  • And much more...
Free Guide Download
Our numbers speak for themselves
78
Number of UK Offices
30000
Directors Helped
70+
Licensed Insolvency Practitioners