Posted On: 19th July 2012
A recent Ernst & Young (E&Y) report has said that the UK recovery is being held back by the so called “zombie” companies which should be allowed to fail. E&Y have reported that businesses are being kept afloat to the detriment of the broader economy.
These companies are clinging on despite the recession making markets and the economy inefficient. “The expected jump in the number of companies falling into administration has not materialised” according to the report. “Banks do not want to be seen to be pulling the financial rug from underneath companies that are facing difficult trading conditions” the report went on to say. While zombie companies are still trading they are taking market share from viable companies which should be growing and boosting the economy.
According to R3 around 30% of companies were regularly reliant on their maximum overdraft facility – which is a good gauge of whether a company is viable or not. Tim Corfield says “At some point these companies will have to go – although this has been predicted for a number of years now….. we are in unchartered waters”.