creditcontrol.co.uk
Could rising insolvencies address the UK's zombie problem?
After a year of fluctuating business failure statistics, a sharp rise in company insolvencies in October 2025 generated the usual concerns about a possible tsunami of Administrations and Liquidations amid suggestions that the 2024 Autumn Budget’s business tax rises and increases in the National Minimum Wage were finally coming home to roost.
The obvious response to surging insolvencies is to see them as a negative indicator, but maybe at the same time they could be good for ameliorating one particular economic issue endemic in the UK economy: ‘Zombie’ companies, which stagger on distorting competition and keeping valuable financial resources tied up in unproductive businesses.
To explore this further, we asked Nick Hood, Senior Business Adviser at the Opus Business Advisory Group to delve into this unlikely economic upside.
The problem with Zombie companies
“Zombie companies weaken the economy by hindering overall growth, stifling competition and keeping scarce resources locked inside inefficient businesses with little or no positive prospects. The many adverse impacts include lower productivity, increased borrowing costs for healthy businesses and a misallocation of both capital and human talent that could otherwise be deployed in more innovative or productive enterprises. This leads to reduced job growth and fewer new business ventures.”
How big is the Zombie issue?
“In 2022 we researched the records at Companies House to find all of the zombie companies with a negative balance sheet, with negative balance sheets where their liabilities exceeded their assets by a de minimis figure of at least £20,000. The total was 257,150, or one in sixteen of the total corporate population of the UK. This figure was 10% higher than the previous year.”
“These technically insolvent companies had combined assets of £450 billion, which might otherwise be more productively deployed. Their net liabilities were £299 billion, which is the potential loss to the creditor community if they failed. They were borrowing £913 billion, lending capacity which might alternatively be used to finance growth in healthy businesses.”
“Since 2022, we have produced detailed reports on key sectors on a regular basis and watched the army of the walking corporate dead grow both in numbers, percentage and the scale of net liabilities:
Are Zombies only under-capitalized SMEs?
“It’s easy to assume that this type of financial vulnerability focuses mainly on the SME community, where the willingness and ability to inject fresh finance into a struggling business by way of equity is limited. In this scenario, entrepreneurs tend to reach for loans and other types of external funding, perhaps supported by personal guarantees backed by security over their personal assets.”
“A study by BDO found that it is an even greater issue in the mid-market than among smaller businesses. The Zombie rate for medium-sized enterprises appears to be 10%, compared to only 6% for the whole corporate population.”
Is this down to low interest rates and the pandemic?
“Various academic studies published by the Bank for International Settlements, the OECD and others confirm that the long period of ultra-low interest rates fuelled the original boom in Zombies in the late 1990s through to the late 2000s, but the more recent rise in interest rates subsequently tended to push firms towards insolvency rather than the limbo of Zombyism.”
“The pandemic is estimated to have generated a $2 trillion boost to corporate liquidity through government support measures worldwide. The main Coronavirus loan schemes in the UK provided ‘soft’ loan support of some £70 billion to 1.6 million businesses, deliberately to avoid unnecessary carnage among otherwise viable businesses from the gross disruption they were suffering. The problem was that many non-viable entities were protected from insolvency in the process and some have become Zombies.”
The rise of the Zombie slayer
“Mindful of the deadening effect of Zombies on economies all around the world, there are increasing calls for what some are describing as ‘Zombie Slayers’ to come to the rescue by helping to speed up the clearance of dead wood from the commercial forest. This is characterisation is odd for business recovery and restructuring professionals, never mind insolvency practitioners.”
“Nevertheless, it sums up what these experts do year in and year out. The experience can never be made pleasant for the stakeholders in the businesses affected, but it is an essential service to make the UK economy more healthy, with efficient and productive re-allocation of capital and human resources, improving productivity and meaningful growth. It seems that more insolvencies may not be such a bad thing after all.”
