The proportion of ‘zombie companies’ in the UK has risen to 20 per cent since the start of the coronavirus pandemic, a major study has revealed.
The research, published by think tank Onward, is among the first to highlight the true impact of the outbreak on the health of the business sector.
Zombie firms are defined as businesses that are burdened with so much debt that their profits only just cover their debt interest payments – making it almost impossible to grow, invest, or source new finance or funding.
The study suggests one to four per cent of all companies in the UK have “zombified” since the start of the pandemic in March 2020, bringing the total proportion to 20 per cent, or approximately one in every five companies.
This is largely due to the huge amount of borrowing undertaken over the last 12 months to support firms forced to close, through schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Back Loan Scheme (BBLS).
Commenting on the findings, the think tank said: “This rise in zombie firms will have a knock-on effect across the economy, with our estimates suggesting that without further action business investment will be reduced by £42 billion a year, slower employment growth that could mean over 400,000 fewer jobs created in a recovery that takes over twice as long, and lower productivity leading to £41 billion of lost growth over five years—more than £500 per person.”
Looking forward, Onward has called on the Government to “substantially support firms over the medium-term”, with options such as restructuring, debt to equity swaps, or partial or outright forgiveness.
“None of these options are uncontroversial and paying it forward for each involves varying degrees of moral hazard, taxpayer loss and engineering complexity. However, our solemn conclusion is that some form of action is unavoidable,” said Onward.
To access the paper in full, please click here.
For help and advice with related matters, please get in touch with our expert corporate restructuring and advisory team today.
