"Apply the insolvency test more strictly."Featured comment
Zombie companies – barely profitable and unable to repay debt – are keeping some banks awake at night, says the restructuring team at KPMG.
The firm’s "zombie survey" of 180 lenders, including all but one major bank, forecasts more insolvencies and receiverships as banks are forced to get tougher on companies that are simply treading water.
Two years ago, a zombie company would typically sit on a bank’s "work out" department for 12-24 months, but this period is now more like 12-18 months.
Although banks said solvent situations would be their preferred method for dealing with zombies in the year ahead – through refinancing or sale of a business – they expect to make more exits through receiverships.
Overall, banks expect the volume of zombie exits to rise by 5% to 10%.
KPMG head of restructuring Shaun Adams says the tougher approach by banks is beneficial to other businesses as they act as a brake on the wider economy.
"From a macro perspective, you could view zombies as sucking the life out of healthy businesses as they often compete by undercutting competitors just to survive,” Mr Adams says.
“As a profession, we have been surprised by the relatively low levels of insolvency.
"There has been lots of hand holding by banks through the recession and they are continuing to do that, but the survey does suggest there is now a recognition zombie companies should be dealt with one way or another.”
Read more about zombie companies and how they are turning from a headache to a migraine for banks in Britain – where the term was first coined – in today’s print edition of the National Business Review.