The number of Northern businesses just paying the interest on their debts – a key characteristic of ‘zombie businesses’ – has plummeted from 45,000 in August 2014 to 10,000 now, according to research by insolvency trade body R3.
According to the R3/BDRC research, the number of businesses in the region which are having to negotiate payment terms with creditors has dropped from 29,000 last year to just 12,000 now. Similarly the number of firms which say they are struggling to repay their debts when they fall due is down from 13,000 to 12,000.
Richard Wolff, North West Chair of R3 and Head of Corporate Recovery and Insolvency at law firm JMW, said: “There has been a dramatic decrease in the number of ‘zombie businesses’ in the North which suggests that businesses are experiencing greater profitability. More companies can afford to pay off the principal debt itself and not just the interest. This is understandable in this period of ‘non-flation’. A strong pound and lower oil prices may also be helping businesses’ balance sheets.
“The economic climate is rewriting the rules of recovery as we knew it. When interest rates dropped in 2009 it was never expected that they would remain at that level for so long but by doing so it alleviated some of the pressure on businesses and allowed them an opportunity to get their finances in order.”