Zombie companies: Are they haunting the economy?

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.

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APN....

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Apply the insolvency test more strictly.

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Bear in mind some zombie companies will be competing against Chinese imports that are subsidised by the Chinese govt and some monopolistic NZ companies who operate predatory pricing regimes to destroy small competitors which may include some of these zombie companies. But, unfortunately, there is nothing you can do to rectify this.

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Isn't cutting prices to survive the essence of competition?

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By whatever name one opts to label zombie companies, the incontrovertible fact remains that they have been in operation for years and a few have evolved out of it by the measure of their success.

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Receiver's survey recommends more companies are put in receivership. What a great recipe for economic growth.

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The "zombie" companies are likely to be NZ small business working its ass off to stay afloat with little or no bank support, employing other people and unwilling to screw others over. This type of behaviour to these sorts of businesses is a key reason the SME market is often copping bad feedback - help/assist/aide/advise. Slitting the throat will do no one any good.

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Just how lost are the people in the ivory towers? The zombie companies are working their ass off, just to stay afloat, to provide employment to other NZers, in a government-induced climate that is hostile to SMEs.
The trading banks with punitive OD rates, the government with a free-trade policy that favours the dairy industry at the expense of all others, coupled with their pusuit of lowest cost option regardless of collateral effect, then bang in Mr Wheeler and Mr English with a "keep the price of housing in Auckland stable" and forget the rest, Reserve Bank policy.
So now I can tell you the zombies are actually punch drunk, not asleep. They are dying daily, resulting in employee flight to Aussie, lower tax take, greater balance of payment deficits and rising unemployment.
I wonder when the ivory tower boffins will actually conect the dots?
They are obvious to the zombies...

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It is the free-market "philosophy" everybody wanted and got. Let them die like poorly managed or unlucky companies should do in a free market. Chinese companies? It is a free market where no trade barriers should exist. We just have to be more competitive, lower wages, like the global economy. You see, it's all part of being more efficient, competing globally. Rogernomics, right-wing economics. Surely zombie businesses understand that? The strongest survive.

All claptrap! There is an elephant in the room called the "global economy". No one wants to stand up and say: "It is a failure in its current form". Flogging a dead [economic model] horse? We are now kicking the bones around, hoping for the best.

Economists were created to make clairvoyants look good.

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