Fewer zombies, more distress – the business health of East Anglia
PUBLISHED: 18:58 14 February 2018 | UPDATED: 20:04 14 February 2018
As MPs rake through the ashes of the construction group Carillion you might be forgiven for thinking business collapses were on the rise.
Multiyork, Palmer and Harvey and Toys R Us have all teetered on the edge of – and in the first two cases, fallen into – administration, painting a bleak picture.
But in reality business failures in East Anglia are at a seven-year low, according to insolvency experts McTear Williams and Wood.
Insolvency practitioner Andrew McTear said in the final three months of 2017 insolvencies had dropped to 78 in East Anglia, the lowest rate since the second quarter of 2010. He said: “Currently insolvencies are down and it looks like creditors, banks and directors are prepared to put more money into businesses to keep those businesses going.
“At some point I would expect those debts to be called in but at the moment, perhaps due to uncertainty or low interest rates, creditors seem happy to leave it.”
The sector Mr McTear felt was suffering most is retail, with the high street being hit by rises in overhead costs and the strength of online shopping.
“When they don’t achieve growth it can have a very significant and rapid effect because it is hard for them to reduce costs,” he said.
Mr McTear also warned the number of businesses showing signs of financial distress had been on an upward trend since 2008, which means a sudden change in the economy could bring trouble.
Insolvency trade body R3 has reported a reduction in “zombie businesses” – those which are able to pay interest on their debts but not repay the principal amount – which indicates an increasing financial strength among the region’s companies.
The proportion of East of England companies only paying the interest on debts dropped to 2% in December 2017 from 18% in April.
R3 Eastern chairman Mark Upton, a partner at Ensors Chartered Accountants in East Anglia, said: “The downward trend in zombie businesses does not mean, however, that they will completely disappear. Those companies which have refinanced may not be any more productive and may have put problems off for a later date, while a serious financial downturn could easily create a new group of ‘zombies’.”
Figures from big four accountancy firm KPMG found an overall increase in insolvencies between 2016 and 2017, rising by 4.3% to 1,206, but noted the end of 2017 had seen the fewest insolvencies for any quarter of the year.