Apocalypse to hit up to 5,000 zombie firms

UP TO 5,000 zombie businesses are being kept alive by Government coronavirus support measures and many are likely to go under once they are removed, according to accountancy giant EY.

Alan Hudson, head of turnaround and restructuring at Ey-parthenon, the accountant’s strategy consulting arm, said that furlough, business rates relief and other pandemic support measures had kept thousands of companies afloat, suppressing the rate of insolvencies. However, furlough and its equivalent for the self-employed will end in September, as will measures like the temporary cut in VAT for tourism and hospitality businesses.

Hudson predicted that the first wave of collapses will begin during the fourth quarter and that because SMES make up the bulk of UK PLC, “a lot of pain” will be felt by small businesses.

“Compared to the benign 2019, there are around 4,000 to 5,000 companies that have not gone into liquidation over the last 12 months because of the support measures,” he said. “We’ll probably have a first wave (of failures) and these will be companies that were not strong enough to recover and would have failed without Government support.”

While the first wave of failures will be short but sharp, the second and third waves will be dragged out. The third wave will be companies that were already struggling to adapt to changing business conditions, such as bricks and mortar retail.

“The second wave will be companies that have been so affected, that when they try to refloat their business, it will prove to be too much,” Hudson said. He added that while some sectors are likely to bounce back quickly, others like travel, leisure and hospitality face a “longer route to recovery”.