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Are your business partners the ‘Trading Dead?’

Mike Pavitt LLP Partner, Insolvency & Recovery, Paris Smith LLP

Anyone who has read any financial pages in the past year or so cannot have failed to come across the term ‘zombie’ used to describe certain businesses. These are typically those firms who are rather shambling along, perhaps able to service the interest on their loans, but who have little or no long term prospect of ever repaying them or of becoming more productive and employing more people. The commentary runs that these businesses, and the policies which allow them to continue as they are, stifle proper competition and are harmful to economic growth and entrepreneurial prospects.

Well, if you’ve ever wondered what the true definition of a zombie firm is, how they may be affecting you, or what clever academics say should be done about them, you need look no further than this learned report from the Adam Smith Institute:

Adam Smith Institute Report: The Trading Dead

I particularly like the final sentence, “such is the best way to tackle the zombie hoard”. Assuming this wasn’t a typo but a deliberate juxtaposition in the spelling stakes, it conjures for me an image of a class of central bankers and politicians spreading themselves out like some jealous Smaug over businesses who, for example, can only maintain the interest on their loans owing to artificial policies and practices, vainly trying to burn away the rising tide of market forces lapping at their feet. The suggestion seems to be that the time has come for the dragons to flee the “hoard”, and let the true economy wash away the “horde”.

The Association of Business Recovery Professional (R3), of which I am Vice-Chairman for the Southern Region, will soon publish its own report in response to this research, talking further about the role which insolvency practitioners and other professionals involved in turnaround and allied industries can play in restoring the UK economy to fighting fitness.