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How Zombie Companies Survive

There has been much talk in the media recently about the existence of so called Zombie companies, those firms that can continue in business with outside support but cannot stand on their own without it.

What sort of support are we talking about?

In today’s economy there are a variety of reasons why a company might continue to trade when really it does not have a strong underlying business. Firstly its bankers may be supporting it by allowing it to repay interest only on its debts. The company therefore trundles along only just meeting its interest payments but never repaying the capital. The question is how long before the banks decide to call in the capital?

Secondly HM Revenue and Customs may have given it time to pay its VAT, corporation tax or PAYE. If ongoing tax bills can be paid as they fall due at the same time then things might work out. If they cannot the company is just storing up trouble for the future.

Zombie companies are only just meeting their costs and not making any real profit from which they can invest for the future in plant, machinery, marketing, staff etc.

Some say that these companies should be allowed to fail so that the banks’ capital can be reallocated to more profitable firms with a better business outlook.

However these firms should be seeking professional assistance now. They may be able to restructure their business, attract new management in key roles and seek new capital. They may also be able to use insolvency procedures or more informal approaches to reduce their debt burden and provide a clean slate from which to grow the business.

Management often wish to get out of the mindset of “just getting along” and  find ways in which to grow the business  and secure existing jobs.

Gore and Company works with directors to provide clear and concise advice on corporate restructuring  based on a sound investigation of the company’s financial difficulties. 

Interested parties should contact Gore and Company on 0845 602 3620 for further information.

Please note that the above is provided for illustration purposes only and comprises a short view of extremely complex insolvency and other legislation. This is a complicated area and specific advice must be sought before undertaking any course of action or before refraining from any course of action. Gore and Company takes no responsibility for any loss incurred to or by any person who either acts or refrains from acting on the basis of the above or of any other item published on this website. The above note may not be reproduced without the prior written consent of Gore and Company.

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