'Zombie' fears as insolvencies rate falls to lowest for five years

UK firms are going bust at the slowest rate since the heady pre-credit-crunch era of 2007, credit checking company Experian said today.

The firm's latest insolvency index showed just 0.06 per cent of the business population – 1,271 companies – going under in January, down from 0.08 per cent at the end of last year.

It comes despite a number of high-profile administrations over the month, including music and games retailer HMV and DVD rental firm Blockbuster.

The figures inevitably raise concerns over the number of unviable 'zombie' companies unable to pay off borrowings and being kept alive by rock-bottom interest rates and forbearance by banks unwilling to write off loans.

Many experts, including some Bank of England rate-setters, fear these companies are draining scarce bank credit from more viable companies.

The UK's mid-sized firms saw the biggest fall in insolvency rates in the year to January, as businesses with between 26 and 50 employees and 51 and 100 employees saw a fall from 0.20 per cent to 0.14 per cent and 0.14 per cent to 0.07 per cent respectively.

The largest firms – those with more than 500 staff – saw their average insolvency rate decline from 0.20 per cent to 0.15 per cent in January this year.

Max Firth, Experian business information services director, said: "Although January is typically a slow month for business insolvencies, the figures for January 2013 do show a marked decline in the insolvency rate, which in fact has hit its lowest level for over five years.

But he added: "High-profile insolvencies so far this year show that it is still a challenging climate and businesses across all sectors and sizes need to adapt to changes in their trading environment.

"Businesses who want to secure the right deals, contracts and finance in order to grow this year need to ensure they are in the best position possible financially. This means thinking about their own credit rating and assessing what it says about them."

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