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Construction tops 'zombie company' list

Construction and real estate have overtaken retail, travel and leisure as the sectors worst affected by the downturn, according to KPMG.

KPMG’s second annual report on zombie companies found that bank’s work-out teams were most active in construction and real estate, and predicted hikes in insolvencies and distressed mergers and acquisitions.

‘Zombie’ companies are those that are either loss-making, or make so little profit that they can’t pay down their debts.

Loan book sales are also expected to increase.

KPMG found that debt compromises or financial restructuring were the most common solutions applied to zombie companies.

51 per cent of respondents to the study said it is harder to resolve a zombie company’s issues than a year ago, while 71 per cent said capital costs were affecting decision-making.

KPMG UK head of restructuring Richard Fleming said: “If worsening GDP figures weren’t evidence enough, our zombie company research shows urgent action is needed to stave off a worsening situation. 

“With construction and real estate at the top of banks’ danger lists, the UK Guarantees scheme to boost infrastructure investment should be seen as an important step in the right direction.”

He continued: “That said, the research also showed that while management was the single biggest reason for a company being placed into an insolvency procedure last year, this factor has only dropped to second place in this year’s findings.  It is clear that supporting and improving the quality of company management is an important issue which must be weaved into the country’s growth agenda.”

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