So-called ‘zombie’ firms should be allowed to fail, rather than continually being kept afloat by lenders, Ernst and Young (E&Y) has stated.
The current economic situation has created an environment where it is too difficult for businesses to fail, so poor businesses are being kept above water unnecessarily and are inhibiting the wider economy, the accountancy firm claimed.
Rates of insolvency are currently below historic norms for recessions, despite numerous high profile business failures over the last few years.
Zombie firms may take valuable market share away from companies who have the ability to boost the economy, whilst capital that would otherwise get recycled and reinvested into the economy can also be held up in failing enterprise.
Head of Restructuring at E&Y, Alan Hudson, commented, “The whole thing grinds along very slowly. It is a very unsatisfactory environment that has become so during the crisis which began in 2007-08