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News 23.4.13

‘Zombie’ businesses leaving UK economy stagnant

News 23.04.2013

According to the Insolvency Service’s results for the fourth quarter of 2012, the number of company liquidations (compulsory and voluntary) reached 3,834 – 3.3% down on the previous three months figures. Conversely, corporate administrations rose by 5.8% on third quarter levels, although for the year as a whole the number of administrations in 2012 was 11.9% lower than the previous year. John Alexander, partner at Carter Backer Winter said: ‘The decline in the number of compulsory liquidations in 4th quarter 2012 indicates that HMRC – the single largest petitioner in these cases – is continuing to lend a hand to struggling businesses by not pushing them into liquidation. ‘The steady decline in the number of creditors voluntary liquidations over 2012, to below 2011 levels, shows a general lack of activity in the business community. It is evidence of the continuing stagnation in the economy and the proliferation of zombie companies that, despite struggling, failing to make money and unable to grow, do not enter into formal insolvency procedures but just continue to muddle through, often losing more money and getting further into debt. ‘Companies these days often do not go quietly when they come to the end of their natural life. They wait for a trigger: the bank pulling the plug on new finance, lack of credit from a supplier, the next quarterly rent, a major change in the market, or a demand for payment of overdue taxes from HMRC to push them over the edge and into insolvency.’ Alexander predicts that, should the UK experience the dreaded triple-dip recession, the number of insolvencies will rise significantly as struggling companies finally ‘fall off the perch’