Business failures are on the increase again, with a 12% month-on-month and 16% year-on-year rise in October 2025. This obviously creates concern and wonder what this surge says about the stagnant, barely growing UK economy. Is there a tsunami of insolvencies round the corner, threatening to overwhelm the business community?

Increasing business failures includes removing what are known as ‘Zombie’ companies from the commercial landscape. These are inefficient companies which are often surviving only with the grace of their creditors, while distorting competition as they work frantically to generate cash in a desperate attempt to keep their business afloat.

What is the impact of Zombie companies on the economy?

Zombie companies weaken the economy by hindering overall growth, locking up scarce resources and stifling competition. Their impacts include lower productivity, increased borrowing costs for healthy businesses and a misallocation of both capital and of human talent that could otherwise be deployed in more innovative or productive areas. This leads to reduced job growth and fewer new business ventures.

The UK has major Zombie issues

In 2022 we researched the records at Companies House to identify all of the Zombie companies with a negative balance sheet, where their liabilities exceeded their assets by a de minimis figure of at least £20k:

• The total we found was 257,150, or one in sixteen of the total corporate population of the UK.
• This figure had increased by 10% since 2021.

These technically insolvent companies had combined assets of £450bn, which might otherwise be more productively deployed. Their net liabilities were £299bn, which is the potential loss to the creditor community if they failed. They were borrowing £913bn, lending capacity which might alternatively be used to finance growth in healthy businesses.

Since 2022, we have produced detailed reports on key sectors on a regular basis and watched the army of the walking corporate dead grow either in number or the scale of net liabilities, or both:

Are Zombies just an SME phenomenon?

The temptation is to assume that this type of financial vulnerability is focused mainly among the SME community, where the willingness and ability to inject fresh finance into a struggling business by way of equity is limited, so that entrepreneurs tend to reach for loan and other types of external funding, perhaps supported by personal guarantees backed by security over personal assets.

A study by BDO suggests that it is an even greater issue in the mid-market than among smaller businesses. The zombie rate for medium-sized enterprises appears to be 10%, compared to the whole corporate population at 6%.

What role have low interest rates and the pandemic played?

Various academic studies published by the Bank for International Settlements, the OECD and others confirm that the long period of ultra-low interest rates fuelled the original boom in Zombies in the late 1990s through to the late 2000s, but the more recent rise in interest rates subsequently tended to push firms towards insolvency rather than the limbo of Zombyism.

The pandemic is estimated to have generated a $2tn boost to corporate liquidity through government support measures worldwide. The main Coronavirus loan schemes in the UK provided ‘soft’ loan sustenance of some £70bn to around 1.6m businesses, deliberately to avoid unnecessary carnage among otherwise viable businesses caused by the gross disruption they were suffering. The problem was that many non-viable entities were protected in the process and some have become Zombies.

The experience is never going to be pleasant for the stakeholders in the businesses affected, and properly supporting business owners at this time is key. However, addressing the issue of Zombie businesses is an essential part of making the UK economy healthy, with efficient and productive re-allocation of capital and human resources, improving productivity and meaningful growth.

If you are seeking professional advice for your business, Opus is here to help. We can arrange for you to speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.