New wave of 'zombie' companies faces collapse as financial distress surges

"Tens of thousands of so-called "zombie" businesses could collapse this year as mounting cost pressures and weak demand push companies to breaking point, insolvency specialists have warned. New research from Begbies Traynor shows a sharp rise in businesses experiencing severe financial strain, with a 44 per cent increase in companies classed as being in "critical financial distress" in the final three months of last year compared with the same period in 2024. In total, 67,369 companies were identified as facing critical distress, according to Begbies' latest Red Flag Alert report."

"The hospitality sector was among the hardest hit, following a difficult Christmas trading period marked by weaker consumer spending. Hotels saw a 54 per cent increase in businesses showing signs of critical distress over the past year, while bars and restaurants recorded a 39 per cent rise. Begbies said companies across the economy were continuing to "grapple with a prolonged period of economic uncertainty", compounded by rising operating costs from higher wages, elevated interest rates, increased tax burdens and subdued consumer demand."

""While many of these organisations have struggled along for years, we see a new catalyst in 2026 that could push some over the edge," Palmer said. "That catalyst is HMRC beginning to call in a portion of the £27 billion in overdue corporation tax, PAYE and VAT that built up during the pandemic.""

Begbies Traynor identified 67,369 companies facing critical financial distress, representing a 44% increase in the final three months of last year versus the same period in 2024. The Red Flag Alert assesses public filings such as county court judgments and company accounts alongside Begbies' financial stress scoring to track deterioration in key financial indicators. The hospitality sector was particularly impacted, with hotels up 54% and bars and restaurants up 39% in signs of distress. Rising wages, elevated interest rates, higher tax burdens and weak consumer demand are pressuring firms. A potential HMRC push to collect part of £27 billion in overdue taxes in 2026 could push many fragile firms over the edge unless fresh investment is secured.

Read at Business Matters