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Zombie firms 'have a key role to play'

Date Added: 08/01/2013  

Zombie firms should not be given up on as they can have a key role to play in the UK's economic recovery in the coming months and years.

This is the view of Tom Faichnie, corporate finance partner at independent Scottish chartered accountants Campbell Dallas, who stated it is too easy to write off a struggling company as a "zombie" business.

A zombie firm is defined as one that is only able to pay off the interest on its debts, failing to reduce the money it owes to its creditors each month.

Speaking to the Scotsman, Mr Faichnie explained that the reason there are so many of this type of company in the UK at the moment is that there is no way directors and executives are able to invest for the future.

"These businesses are surviving because they are making enough money to service the interest on their loans, which in turn gives the banks little reason to foreclose the agreements," he told the news provider, adding it has been "easy" for companies to fall into this trap over the course of recent years since the start of the recession in 2008.

It was noted by the Campbell Dallas representative that these companies often "possess a wealth of employees and may be well established in their sector", which means they can still contribute to the UK's economic recovery.

"Regardless of their cash-flow woes, Scotland can't afford to lose them. Although they are servicing high debt levels and perhaps have an inability to grow, they contribute to the economy through their vast labour forces," said Mr Faichnie.

His comments come shortly after figures released by accountancy organisation KPMG showed the number of firms becoming insolvent in Scotland during 2012 was down on the data for the previous year.

But Blair Nimmo, head of restructuring, told the Herald that many companies are still acting in a cautious manner due to their financial situation.

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Posted by Miles Pritchard

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