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A record number of British businesses with high debts and slim operating margins face insolvency as cheap business loans disappear.

Tough UK Economy Slays Zombie Companies.

‘Zombie’ companies are being buried under a debt mountain as the cost of refinancing business loans becomes prohibitively expensive.

British businesses of all kinds are struggling to survive harsh trading conditions created by a combination of higher interest rates, high inflation, cost of living pressures and the end of the British government’s Covid-19 business support initiatives. 

Record UK insolvency rates

However, ‘zombie’ businesses – those operating on paper-thin margins and earning just enough to stay in business but not to pay off debt – are most in danger in the current UK economy. Zombie firms are collapsing in record numbers as banks refuse to do business with them and cheap sources of finance evaporate.  

The latest official statistics show that UK company insolvencies are at their highest level in 14 years. More than 6,300 British businesses became insolvent in Q2 2023, the highest number since the second quarter of 2009 and 9% higher than in the first quarter of this year, when seasonally adjusted*.

Tough business conditions to continue 

Economic analysts and strategists are concerned that business conditions will remain tough in the second half of 2023, sending more businesses into administration.  

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, Ernst & Young’s global strategy consulting arm, says: “Although company insolvencies have been steadily increasing over the last 18 months, largely driven by Creditors’ Voluntary Liquidations (CVLs), in Q2 there was a significant uplift in the number of compulsory liquidations which rose 67% year-on-year. 

“The current low-growth, high-inflation and relatively high interest rate environment has meant many businesses have faced building pressure over the last 12 months which is now translating into distress. The increasing cost of refinancing options available to companies in this higher interest rate environment are now having a direct impact on profitability.”** 

Retail, construction, and hospitality

The collapse of Wilko, which went into administration in early August after struggling to maintain sales, highlights the continued pressure faced by high street retailers battling to pay overheads while competing on price with online rivals.  

An increasing number of retailers are seeking expert financial advice about cash flow solutions, debt recovery and commercial finance.  

Other sectors which have been particularly hard hit include hospitality and construction. UK restaurant closures are at record highs as the cost of living crisis forces customers to cut back on discretionary spending, while building companies and restaurants are being hit with supply chain problems and rising wage pressure. 

Understanding your options

As licensed insolvency practitioners and cash flow specialists who have been in business for more than 15 years, we are regularly approached by company directors, CEOs and entrepreneurs worried their business may be in serious financial trouble. The good news is that there are often more options than you realise.   

For example, depending on your situation, there may be alternatives to declaring bankruptcy or putting your business into administration, including negotiating with creditors and restructuring. We offer knowledgeable guidance and advice on the full gamut of insolvency procedures, including:  

  • Informal strategies and refinancing 
  • Administration 
  • Creditors’ Voluntary Liquidation ( CVL ) 
  • Company Voluntary Arrangement ( CVA ) 
  • Members’ Voluntary Liquidation ( MVL ) 
  • Individual Voluntary Arrangement ( IVA )  
  • Bankruptcy 

At BABR, we take the time to listen and understand your particular challenges, working in partnership with you to deliver the best possible outcome for you and your business.  

Contact us today for a free, confidential consultation with no obligation to proceed. 

* https://www.gov.uk/government/statistics/company-insolvency-statistics-april-to-june-2023/commentary-company-insolvency-statistics-april-to-june-2023 

** https://www.ey.com/en_uk/news/2023/07/ey-comments-on-insolvency-statistics