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Insolvencies steady due to 'zombie companies'

Date Added: 04/09/2012  

Figures showing the number of insolvencies in the UK have remained steady in recent months can be explained by the rise in zombie firms, it has been claimed.

According to Karen Dukes, business recovery partner at PriceWaterhouse Coopers (PwC), there has been an increase in the number of companies that are only able to pay off the interest on their debts every month.

Speaking to the Financial Times, she explained there are no benefits to issuing these types of businesses with a winding up order, which means they are likely to survive for another year.

Vince McLoughlin, partner at business, tax and charity advisers Russell New, told the newspaper that the economy is "stagnant" and it is hard for firms to survive.

Barry Lewis, senior partner at Harris Lipman, the chartered accountants and insolvency practitioners, noted there has also been a rise in the number of business owners who are walking away from their companies rather than going through the proper channels.

He explained this may be as some directors cannot afford the fees involved with a liquidation or an insolvency, so they instead just shut down the firm on their own.

Tracy Ewen, managing director of IGF Invoice Finance, highlighted the fact that she has seen a marked rise in the number of businesses ceasing to trade as a percentage of her company's client losses overall.

"In 2011, 31 per cent of our total client losses ceased to trade. For the same period in 2012, this has risen to 41 per cent," she told the news provider.

Analysis of major retail insolvencies since 2011 conducted by insolvency trade body R3 showed that around half of retail jobs are saved when companies in the sector are forced to declare themselves insolvent, while 53 per cent of jobs are preserved during the process and 48 per cent of the stores shown to survive.

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Posted by Michael Beam

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