03rd Jan, 2013The new buzz word in the Insolvency professional is Zombie, as in Zombie Company, which is basically a company that is a dead man walking, just hanging on, robbing Peter to pay Paul, with time to pay arrangements in place with HMRC and major trade creditors, and often under the supervision of the Business Support Unit of their Bank. The sad fact is that particularly for smaller companies, it is often impossible to trade out of a substantial financial deficit, often for several reasons. The fundamental difficulty of trading out of a cash flow deficit is that the lack of cash makes increasing sales difficult, due to the lack of working capital. One solution is to find new capital, bring new cash into the equation. In the current post credit crunch climate, this has never been a harder task. In any event, there is a real risk of throwing good money after bad, where the new cash is swallowed up by the old debts, and proves to be insufficient to resolve the financial difficulties. In many circumstances, where there is the possibility of new investment, the potential investors would rather purchase the assets clean from an Administrator or Liquidator, leaving the old debts in the old company, and re-starting the business in a new, clean company. This is often perceived to be sharp practice, or unethical or morally wrong. But in reality, it is often better that a viable entity is salvaged, with some or all of the jobs saved and customer orders fulfilled. A company liquidation is not always the end of a business, but a fresh start for the business in a new, viable, solvent company.