Posts Tagged ‘company insolvency’

What is a Zombie Company?


what is a zombie company?


What is a zombie company?

A zombie company is simply a company that is neither dead or alive.

In other words, the company is so overwhelmed by debt that any cash generated, is being used to pay off the interest on the debt owed to creditors. In many cases, the debt is not being reduced. With this, the majority of ‘Zombie’ Companies are unable to invest in any future growth of the business. Therefore, are unable to employ more staff.

The first sign that a company is turning into a zombie will often seem like symptoms of unusual health.

However, in some instances, the company will appear to be thriving and its executives will be justifiably proud of this success. But Zombie companies, like zombies in movies, slowly move forward, but only just.

Since they’re only just managing to get by week by week. They can’t hire anyone new and they can’t afford to pay out redundancy, as there’s no cash for a payout. The business stagnates slowly but surely, with sudden growth being as much a problem as a downturn in business.

If you’ve seen any films about these members of the undead, you’ll know that zombies don’t tend to last long. This could be the fate of any zombie company that doesn’t properly address its issues. If you’re paying off the interest on a loan and the interest is suddenly raised, your company can die. If someone business-critical leaves their role for a better job at a company that is enjoying healthy growth and you can’t afford to get someone of the same caliber, your business will slowly die.

Ignoring a zombie company won’t do any good. Unfortunately, they’re often created because businesses ignored signs that all wasn’t healthy in the company finance book. That’s why it’s so crucial businesses get help early on, raising their company back to the land of the living.

How Bell & Company can help

Whether it’s worth refinancing the debt, selling off a non-crucial asset in order to reduce the debt and giving the business a little more cash, or speaking with a business consultancy to achieve a company turnaround, there are ways of helping your business to get back on its feet again.

A business consultancy move will help advise you on the best course of action, bringing a fresh pair of eyes to your company and seeing what you work with daily, before coming up with a plan to rescue your business.

Call 0330 159 5820 for further information if your company is in a zombie state.

Company Insolvency – Can I be pursued for the debts of my Business?

A simple answer for this is yes if you have signed a personal guarantee on any loans for a limited company, then yes, the very nature of a personal guarantee is that the signator is personally liable for the debts if the company cannot commit to them any longer.

It is standard practice that a company director of a limited company may be asked to sign a personal guarantee as security or assurance to the lender for company borrowings as this minimises the risk involved to the lender. However, signing a personal guarantee, whilst sometimes essential in helping a company, needs to be given due consideration and correct advice should be obtained before doing so as there can be serious repercussions for the individual should the company become unable to fulfill the terms of the loan.

Company Insolvency

If a company begins to experience financial issues or is showing signs of financial distress then this could be a worrying time for a director as the possibility of personal assets becoming exposed is a very real situation.

A lender may be able to take a charge over a property/ asset so that they can recover the debt in the event that the company or director cannot pay.

It is worth mentioning that paying creditors that have a personal guarantee before creditors that do not have such security can be considered as paying a preference.

It is a reality which many have come to learn when businesses are in financial difficulty the lender will pursue any personal guarantees to recover a debt owed. Directors cannot assume that any debt which is associated with the business is wound up after the business enters liquidation.  Personal guarantees are personal and in fact, have nothing to do with the company.   Bankruptcy can become a real possibility and lenders might still pursue individuals for payments long after they’ve stopped working as a director of a particular company.

 Loan Sales and Vulture Funds

With many major Banks selling off their loan portfolios, those who signed guarantees on business loans are being pursued aggressively from vulture funds. Where a secured business facility has been issued to an individual(s) Partnership, the subject Lender or vulture fund will work through the sale of any security held in order to seek to reduce the balance owing. Once this has been completed, however, the guarantor is fully exposed and can be pursued for the crystallised shortfall, up to and including Bankruptcy in which case personal assets can be at risk.

It is important to note at this stage and any before or thereafter, there are options.

Are Personal Guarantees Negotiable?

Negotiating in relation to a Personal Guarantee is most possible when broached in the correct way and with the right presentation, however, is very rarely straightforward. That is why here at Bell & Company we assess each case on its own merits and devise strategies based on the best possible situation for our client.

Our experts specialise in dealing with personal guarantee negotiations for clients and will fully analyse the position of the client in order to formulate a tailored strategy before entering into dialogue with the lender.  This includes a full review of the business, client, personal and business assets to gain an overall view of where the client is, what is important and where they want to be.

Getting the right advice

There is most definitely scope for negotiation from a personal guarantee however the key is to be proactive rather than reactive and to address the situation before it is brought to you.

Whatever your company’s financial position might be, negotiations around personal guarantees are best conducted as early on as realistically possible, regardless of whether your company is set to become insolvent or not.  It is highly advisable to seek impartial advice from a professional and reputable firm when dealing with issues as complex as these.

If a personal guarantee is causing you concern, distress or indeed, you are worried about potential ramifications for what may seem like a ‘hypothetical’ situation now, call us today for independent and impartial advice where our strategists will talk you through your options. Telephone 02895217373 or email [email protected].