Darwin and insolvency

The number of company failures is down for the second quarter running. Hurrah! We’re out of recession, apparently, and now the volume of businesses hearing the nails go in the coffin has dwindled. A bit.
Truth is though that many people are not convinced the company death rate falling is good news. Their view is that many are zombie companies - living dead corporates.
What’s keeping them alive? You know this better than I. Low interest rates, personal savings, deferred tax bills. Nick O’Reilly, an insolvency expert at HW Fisher says he’s routinely seeing companies taking on work at below cost rates, just to keep things ticking over.
In the summer I saw Jon Moulton, former head of Alchemy Partners and now running private equity outfit Better Capital, talk about the total absence of a "Darwinian" process killing off weak companies. Government policy and economic policy was artificially keeping them alive.
Of course, this is the great public policy conflict. Keep businesses alive and keep (some) people in work, garner positive headlines. Or, let nature, as it were, take it’s course.
Moulton’s point was that the current situation is only postponing the pain, plus it’s clogging up the country’s corporate arteries. The zombies are dominating energy, capital and resources that could otherwise be devoted to businesses with better prospects.
Maybe so, but it would be a near suicidal politician who said we needed a policy to kill off wounded businesses. The outcry would be deafening.


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