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Fresh warning over “zombie” businesses
New figures from the insolvency trade body R3 show that the number of businesses opting to be removed from Companies House as an alternative to going through formal insolvency process has increased – prompting a warning to creditors. Whilst there …
New figures from the insolvency trade body R3 show that the number of businesses opting to be removed from Companies House as an alternative to going through formal insolvency process has increased – prompting a warning to creditors.
Whilst there are many legitimate reasons to remove a company from the register held at Companies House, the fear is that many of these companies might actually be “zombie” companies with substantial debts remaining unsatisfied.
The term zombie business applies to any indebted company, which is only able to repay the interest on its debts, but not reduce the debt itself.
The number of businesses meeting this description grew rapidly after the recession six years ago, as many companies found themselves struggling to meet repayments on their debts.
The latest research from R3 has shown that some of these companies, instead of choosing a formal insolvency process, may have opted to ‘quietly’ remove themselves from the Companies House registry.
The number of companies opting to be simply removed (‘struck-off’) from the Companies House register has jumped by 28 per cent in the last three years, from 139,594 in 2010-11 to 178,996 in 2013-14, according to the research conducted by R3.
Andrew Tate, deputy vice president of R3, said: “Ordinarily, insolvencies rise following a recession, due to problems like ‘over-trading’ during recoveries or as a delayed impact of the recession itself. Since the 2008 recession, however, insolvencies have fallen.”
“It may well be that many of the UK’s ‘zombie businesses’ have been just removing themselves from the Companies House register rather than opting for a formal insolvency procedure.”
He warned creditors to be wary and keep an eye out for clients choosing this option over traditional insolvency, as it could leave them without any recourse to collect aged debt.
His warning come after the same survey found that creditor objections to ‘strike-offs’ had grown by 38 per cent during the same period, rising from 1,738 in 2010-11 to 2,406 in 2013-14.
At Royds, our Dispute Resolution team are highly experienced in using insolvency process and the court system as a debt recovery strategy. We have particular expertise in drafting and effective service of statutory demands and defeating debtors’ applications to set them aside. For further information on our services, please visit or contact Stewart Wilkinson.
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