30 SECOND GUIDE: Zombies

By DAILY MAIL REPORTER

Updated: 03:42 EST, 1 August 2012

The Daily Mail City team looks at companies that are teetering on the edge of insolvency.

What, the living dead?

Well, yes actually, but perhaps not as you imagine. We are talking about zombie businesses. They are effectively bust, but are somehow hanging on. But it wouldn’t take much to consign them to the cemetery.

What about them?

According to insolvency trade body R3, there are a lot of them around. In fact, in a report yesterday R3 said 8 per cent of UK businesses are zombies, or 146,000.

The living dead: A report by R3 said 8% of UK businesses are zombies

So what do they look like?

R3 has four ‘zombie indicators’ for companies: 1) the ability to pay the interest on debts but not reduce the debt itself; 2) in the event of an interest rate rise, the business cannot service its debt at all; 3) struggling to pay debts when they are due; 4) having to negotiate payment terms with suppliers.

Sounds bleak

It is, as Lee Manning, president of R3, explains: ‘These businesses have been running on empty for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer. The danger for businesses that are teetering on the edge is that any change in circumstances, such as a rise in interest rates, the loss of a major customer, or suppliers upping their prices, will mean that they will not be able to hang on any longer.’