May 14, 2015

By Greg Bolton, head of corporate finance at RMT Accountants & Business Advisors

One of the perhaps more unexpected elements of the recession is the fact that, while many companies found things too tough to carry on, the numbers that went out of business weren’t actually as high as they might have been.

The phenomenon of the ‘zombie business’ arose in the years after the financial crisis hit us, with tens of thousands of firms stagnating, rather than growing to any great degree, and managing to stay alive solely due to the forbearance of banks and other stakeholders.

These firms were characterised by traits such as being able to pay the interest on their debts, but not reduce the debt itself, or struggling to meet their commitments when payments to suppliers, utility firms or the taxman came due.

Banks’ patience with companies that might have gone to the wall in previous recessions wasn’t necessarily based on any degree of altruism, but more down to falls in the values of the assets on which their lending was secured, most especially in the commercial property sector.

Lenders’ losses could have been greater if they had decided not to support a given customer, so they chose to take a longer view.

Move forward to 2015, and on the back of the economic progress that’s been made in the UK, there are indications that some of our financial institutions are perhaps starting to consider whether realising some of these long-held assets might be an option for them, which could be bad news for North East companies wanting to take advantage of the calmer economic waters in which we’re now sailing.

If relationships between businesses and their banks show signs of becoming strained, it’s always tempting for the owner/managers of the former to ignore the situation in the hope that it will calm down somehow or even go away, but the likelihood is that taking that approach will only bring things to a head sooner rather than later.

As always, effective communication between all the relevant parties is the key to finding the right way forward.

Make sure that your bank understands both your business’s present and expected future financial situation, as well as the ways in which you’re planning to move things forward, and if they’ve got any queries or concerns, answer them as fully and quickly as possible, calling on the help and advice of your financial or other advisors wherever you feel you need it.

Sometimes it is human nature to avoid issues until it’s too late but the key is to identify the issue early and take advice from corporate finance and recovery professionals to expand rather than narrow the options available.

The Insolvency Service’s recent figures for corporate insolvencies in the first quarter of 2015 showed a small quarter-on-quarter fall – let’s look forward to the trend continuing in that direction for the rest of the year and beyond.


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