If you've come across the term 'zombie company' and are looking for guidance on understanding and addressing its potential impact on your business, you're in the right place. This guide aims to clarify the concept of a zombie company, its underlying causes, and practical strategies for resolving any zombie business issues you may be dealing with.
A "zombie company" is a term used to describe a company that is neither thriving nor failing. It can maintain its operations but needs more resources to invest and grow. This situation presents an opportunity for the company to reevaluate its strategies and seek solutions to revitalise its business and financial health. However, it has not yet entered formal insolvency proceedings.
Zombie companies are commonly known for being caught in a perpetual cycle, with substantial business debts and barely enough funds to meet their current obligations. They need more capital for growth and consequently struggle to compete effectively in the market, leaving them in limbo until they either file for insolvency or devise a recovery plan.
Statistics from BDO (March 2024)
Zombie companies come in various forms and are created through different processes. The breakdown below covers the different types of zombies you may encounter.
Debt Zombie — The most prevalent type of Zombie company is one with moderate to significant debts. It generates adequate profits to cover the debt's interest but not enough to repay the principal amount. The company may sometimes lag behind on debt payments and subsequently catch up. In many instances, the lender is fully aware that the company is a zombie but opts to continue collecting interest payments rather than pursuing insolvency proceedings, which is more advantageous.
Debt zombies teeter on the edge of insolvency and may struggle to make timely payments to their unsecured creditors. They are also highly susceptible to increases in interest rates.
Cash injection zombie – These companies continue to operate despite running at a loss, thanks to occasional cash injections from a third party, such as the owner or the government. Zombie companies may receive cash injections for various reasons, such as when a small business owner prioritises sustainability over profit, when external investors seek to protect their investments, or when the government intervenes to prevent the failure of a company deemed too big to fail.
Various factors can lead to a business becoming a "zombie company," and it's important to note that this is often not an intentional decision of the business owner. It often results from challenging circumstances such as unfortunate timing and the state of the economy.
A business becomes a zombie if it's happy to just exist. For example, a bank or lender might recognise a business as a zombie if it's still receiving interest payments from the company; they'll probably be reluctant to try to resolve any issues with historic debt as long as they're receiving interest payments.
Also, if a business director provided personal guarantees for the business's finances when they initially established it, they are unlikely to consider voluntary liquidation because it will make them responsible for repaying the debts if the company fails.
No business ever sets out with the intention of stagnating. However, if a company is not performing as well as it wants to, it can be tempting to remain stagnant rather than try to get back up and running again.
These companies are highly susceptible to even the slightest economic shock, posing a significant challenge to the wider business landscape. The lack of productivity from zombie companies is a drag on economic growth.
The Office for Budget Responsibility (OBR) has identified low investment by firms and low interest rates as the culprits that sustain these zombie companies, leading them to have no desire to enter voluntary liquidation, which in turn causes a significant drain on the economy.
For over 20 years, CoCredo has been one of the leading provider of online UK and Ireland business credit score and reports, financial data, and relevant information on companies to businesses and their suppliers in the UK, Ireland and around the world, effectively safeguarding them from bad debt.
Don't let bad debt from a zombie company affect your business. Use CoCredo's company credit check services to stay informed and protected.
Our unique and innovative company credit checks and scores allow you to easily understand a company’s overall financial health and creditworthiness and help you spot healthy companies from zombies.
Our invaluable access to our Control Panel data is a must-have for any business owner or manager. Our data offers comprehensive, dependable, and valuable credit score information on companies in the UK, Ireland and globally, which helps protect your business from potential risks.
We meticulously gather credit score information from the top credit providers across over 240 territories. Access all the crucial data you need in one convenient report. Stay informed about your customers' business activities and financial status through our company credit monitoring services. Receive real-time daily or weekly updates and risk alerts that empower you to make confident and timely business decisions.
If you want to verify a business’s credit score or request a credit report on your own business, take advantage of our free trial company online credit check to see how we can assist you, or register your business and set up an account with us.
© Copyright CoCredo Ltd 2025 | Registered in England & Wales 05319965 | VAT Registration 878787434