UK
31/10/2013 11:40 GMT | Updated 06/10/2016 11:30 BST

Britain's 430,000 Zombie Businesses 'Need To Be Brought Back To Life'

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George Osborne may celebrate the economy growing by 0.8%, but there are still more than 400,000 "zombie" businesses roaming the country that experts say "need to be brought back to life" to safeguard the recovery.

These "zombie" businesses are cash-starved firms which can't scrape together enough money to invest, but are paying just enough to keep their creditors at bay, leaving them to limp on like one of the "undead". Even more frighteningly, the zombies are eating away at the economic recovery.

An estimated 432,082 businesses are zombies, according to insolvency experts Begbies Traynor, who looked for businesses in a "red alert" financial condition. The fears are that money tied up keeping the zombies going could help more vibrant businesses and firms.

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Business secretary Vince Cable warned in August that they were only still alive thanks to historically low interest rates. , with any spike in danger of making many firms go bust.

The businesses would have been left financially crippled after being mis-sold interest rate swaps, with banks dragging their heels on forking out compensation. In September, just 32 firms had received redress, out of 30,000 cases that are being reviewed.

Alison Loveday, managing partner at law firm Berg, told the Huffington Post UK: "This meant that a business was not only suffering from a mis-sold product, but was being penalised on its credit file, leading to financial stagnation and no further lending.

"In many cases this led to businesses being unable to grow, while in worse scenarios it has seen job losses and even insolvency – the banks penalising businesses that were unaware of these liabilities."

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The zombies are only alive thanks to the banks

According to the insolvency industry trade body R3, the number of companies that been taken into administration fell 16.4% to 1,224 in the first nine months of this year, compared with the same period in 2012.

Derek Sach, head of debt restructuring at RBS, denied that the bank has deliberately kept the zombies going as they are too afraid of the stock to their balance sheets if their loans out from the ailing firms.

"We rigorously go through our books on a monthly basis, looking at loans where we should be making provisions - we are taking the appropriate steps to take write-downs wherever we should," he told the BBC.

The Bank of England has recognised the zombie danger, saying it is "not a bad thing" if lenders extend their credit terms to help firms limp on longer before going bust.

Ultimately, it's a thorny financial situation as the money is still behind an ailing firm rather than being freed up to help more dynamic businesses, as Loveday concludes: "We need to bring the zombies back to life, only then will the SME sector be able to kick-start the economy."

It's a clear Halloween reminder that the business scene does have terrors of its own: a massive zombie colony.

See also:

Reasons Why The Banks Aren't Yet In Order