Written by: Keith Tully
Reviewed: Tuesday 20th December, 2016
The number of British businesses surviving by only paying off the interest amounts on their outstanding debts rose sharply in recent quarters.
That’s according the UK’s insolvency and restructuring trade body R3, which is concerned that the growth of what it calls ‘zombie’ companies could be storing up financial problems for the thousands of businesses which are not actively paying down their debts.
“Businesses should tread carefully and plan ahead to make sure short-term needs don’t jeopardise long-term survival,” R3’s president Andrew Tate has said.
Figures gathered by researchers from BDRC Continental on behalf of R3 suggest that there are now roughly 139,000 UK companies only paying off the interest on their debts, compared with 69,000 at the same point a year ago.
Those numbers reflect an increase from 4 per cent to 8 per cent of Britain’s businesses.
R3 and its president are concerned that a significant number of British firms might quickly find themselves unable to cope financially when and if interest rates rise in the coming months or years.
“It think it’s a sign that we are starting to find things a bit more difficult,” Tate from R3 said in response to the latest figures on ‘zombie’ companies.
“What our members, as people who deal with companies in distress, are finding is that a lot of businesses are starting to see fuel prices and energy prices increase,” he’s quoted as saying in the Daily Mail.
“The zombie culture has come out of low interest rates and low inflation. I think it’s going to become harsher with the exchange rate and inflation coming through.”
Despite the notable rise in the number of companies only paying off interest on their debts, other indicators on business performance in the UK paint a more positive picture.
R3 reports that the number of British businesses struggling to satisfy their creditors when debt amounts fall due fell from 55,000 to 33,000 between last year and this year.
Both those figures are down considerably on the number recorded in May 2013, when as many as 134,000 UK companies were finding it difficult or impossible to settle debt demands when they fell due.