By Daniel Hunter

Despite the North West economy showing real signs of improving health, new research from North West insolvency practice, Begbies Traynor, has revealed the number of zombie businesses in the region is at a four-year high.

This research, based on an analysis of the Red Flag Alert dataset, shows that one in seven North West businesses are now ‘zombie’ companies. In real terms, this means 39,117 businesses are only just generating enough cash to pay the interest on their debts and keep creditors at bay.

This latest analysis documents a 21.9% rise in zombie companies since 2010. This is approximately five per cent more of a rise than the national average; however the North West is performing better than London and the South East and Midlands regions.

Real estate and property services, support services and the general retail sectors show the highest proportion of ‘undead’ with 6,644; 2,486 and 1,627 respectively in 2013.

Paul Stanley, Partner at Begbies Traynor, commented: “The analysis shows that these corporate zombies have clung onto life over the past number of years due to a low interest rate environment and increased creditor forbearance, but this benign climate cannot continue forever.

“As unemployment rates fall fast, under Bank of England rules interest rates could rise as early as 2014. Even If they go up by only 0.5 per cent insolvencies could increase sharply. Ultimately not all zombies will face the same outlook — some will go on to recover through access to funds and improving market conditions, whilst others seem destined to fail.

“There is clear evidence that zombie companies are prohibiting the growth of healthy businesses and having a negative impact on the North West economy.

“The challenge now is how we restore some of these operationally sound but balance sheet hampered businesses back to good health. The sting in the tail being that many of these businesses will be desperate for new orders and will be particularly vulnerable to overtrading. Our experience shows that even the most experienced directors can simply run out of working capital.”

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