Are We About to See a Rise in Insolvencies?

New research by the insolvency industry’s trade body, R3, has found that the number of zombie companies has gone down by just over 50,000 since November last year.

Zombies are defined as companies that are only paying off the interest on their debt.  However, R3 also found that more SMEs are now in distress as they struggle to negotiate new payment terms with lenders or to repay loans when they fall due.

As banks have been set new targets for improving their capital reserves they are unlikely to do anything other than improve their position.

However we at K2 believe they are also unlikely to pull the plug, so the march of the zombies will continue for some time.

As a result we are unlikely to see the number of insolvencies rise until interest rates are raised. Indeed any significant rise in interest could cause the carnage that normally follows a recession where it is in fact evidence that the economy is coming out of recession.

What’s your view? Are we about to see a rise in insolvencies?

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