Zombie firms choking off economic renewal
Kate Burgess, Financial Times
Published 10:27 AM, 31 Dec 2012
“Zombies” has become a new business buzzword. It describes the thousands of small but barely-alive companies that are only surviving because interest rates are low and creditors, including the tax man and the banks, are forbearing.
These companies can just about service their debt and pay their workers, but little more. They can’t expand and, by clogging up the market, they prevent their rivals from doing so, too. Billions of capital is tied up in these companies.
Banks tolerate them because they do not want to crystallise bad debts, while HM Revenue & Customs is under political pressure not to pull the plug on employers and put their workforces on to the street. Other creditors – including customers and suppliers – would rather the zombies staggered on, as they would prefer some return from them, rather than nothing.
As a result, companies that at any other time would have gone to the wall are surviving.
These companies can just about service their debt and pay their workers, but little more. They can’t expand and, by clogging up the market, they prevent their rivals from doing so, too. Billions of capital is tied up in these companies.
Banks tolerate them because they do not want to crystallise bad debts, while HM Revenue & Customs is under political pressure not to pull the plug on employers and put their workforces on to the street. Other creditors – including customers and suppliers – would rather the zombies staggered on, as they would prefer some return from them, rather than nothing.
As a result, companies that at any other time would have gone to the wall are surviving.
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