Zombie firm massacre as lenders scare

Tim Wallace
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TENS of thousands of firms could close unnecessarily, taking with them a million jobs, if banks cut back the support they offer to zombie companies, the Institute for Turnaround (IfT) warned yesterday.

The group said that after years of helping struggling firms banks are running out of patience and looking to sell on their loans.

That would enable increased bank lending to more productive firms, as the authorities want. But if banks sell those firms’ debts onto investors who are not interesting in their long-term future, the firms could be lost.

IfT chairman Iain MacRitchie warned a “zombie company massacre” could take place, particularly in the troubled specialist retail and consumer electronics sectors – which would leave even more empty spaces on UK high streets.

“There is every possibility that massive amounts of value will be lost in short order, thousands of jobs will disappear,” he wrote to IfT members.

The IfT estimates 75,000 zombie firms struggle to pay the interest on their debts at the moment but could be turned around if they act fast.

That equates to 3.6 per cent of all UK firms. But banks denied taking a tougher line on zombies.

“Trying to return firms to health by giving them time to restructure or actively getting involved has been an effective strategy – 50 per cent of those in intensive care are turned around,” said Lloyds’ Stephen Pegge.