Britain’s debt-laden “zombie” companies are expected to be wiped out by the surge in interest rates, an insolvency specialist has predicted.
Begbies Traynor, the business recovery and financial consultancy, has said all of the nation’s zombies – companies struggling to service their debts and which have avoided bankruptcy through cheap borrowing costs – will have failed by the end of next year.
“Over the next 18 months, we’ll see virtually all of them finally come to an end,” Ric Traynor, the executive chairman of the company, which is seen as a bellwether for UK companies’ health, told Bloomberg.
The company’s double-digit annual revenue and profit growth resulted from a rise in insolvency appointments and its improved reputation for handling mid-sized insolvencies, as well as several acquisitions and its property services.
Company insolvencies in England and Wales have hit a multi-year high, as businesses struggle with rising energy and wage bills, and higher interest rates.
Official figures from the Insolvency Service showed 2,552 companies filed for insolvency in May, 40% more than a year earlier. This was higher than during the pandemic when government support measures were in place, and also higher than pre-Covid levels.
Begbies raised its dividend by 9% to 3.8p a share, after pre-tax profit for the year to 30 April came in higher than expected at £6m, up from £4m the year before. Revenues climbed 11% to £121.8m.
The company, which has an 11% share of the administration market, hopes to handle larger, more complex insolvencies.
Traynor said: “Our insolvency team will benefit from their recent insolvency appointments and increased order book, together with anticipated further growth in the insolvency market.
“We’ve seen an increase in activity for smaller companies over the last year because they tend to be the first ones that are hit when there’s a problem. We’re now moving into mid-market companies.”
The company bought the London-based property finance brokerage Mantra Capital and two chartered surveyors, Budworth Hardcastle in eastern England and Mark Jenkinson & Co in South Yorkshire. In May, it acquired another chartered surveyor, Banks Long & Co, strengthening its presence in eastern England.
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Russ Mould, the investment director at the stockbroker AJ Bell, said: “Begbies Traynor tends to thrive when economic conditions are gloomy. It has seen increased work for insolvencies, which reflects how businesses can crumble under the pressure of higher rates.
“Many companies have reached a tipping point where they cannot generate enough cash to service borrowings and so they have no choice but to fold.”
The UK’s largest pawnbroker, H&T, has also performed well in recent months. Gross lending grew 22% to £128m in the six months to 30 June. H&T said demand for pledge lending – where an item is temporarily given up in exchange for a loan – was at record levels and continued to gather momentum.
“While it is easy to conclude these companies are profiting from the misery of others, both would argue they are doing an important service,” Mould added.
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