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Zombie companies meaning
What does Zombie companies mean?
In legal practice, a zombie company is a distressed business that continues trading despite chronic financial underperformance, typically servicing only interest and surviving through creditor forbearance, covenant waivers or cheap/refinanced debt, with little realistic prospect of restoring long‑term viability. The term is not defined in legislation or case law; it is a descriptive label used across insolvency, restructuring and finance contexts.
Typical indicators include cash‑flow or balance‑sheet insolvency, persistent losses, negative equity, weak interest cover, repeated covenant breaches, arrears to HMRC/Revenue Commissioners, and underinvestment. Its identification is significant for directors’ duties: once insolvency is probable, directors should prioritise creditors’ interests and take advice, to avoid wrongful trading and misfeasance risks (UK) or reckless trading (Ireland).
Legal options commonly considered include consensual restructurings, debt‑for‑equity swaps, and formal processes: in England & Wales, Scotland and Northern Ireland, company voluntary arrangements (CVAs), administration, schemes of arrangement (Part 26 Companies Act 2006) and restructuring plans (Part 26A); in Ireland, examinership, schemes of arrangement (Companies Act 2014) and SCARP for small and micro companies. Usage of the term is broadly consistent across these jurisdictions, though rescue tools differ.
Not all distressed companies are “zombies”; timely restructuring, new equity or operational turnaround may restore viability.
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NEWS
UK corporate crime and regulatory update: legal privilege, sanctions, sentencing consultations, cyber offences, enforcement policy, consumer protection, financial services, health and safety, and Brexit reforms—week ending 1 February 2024
In this issue: Brexit Legal privilege in criminal cases Criminal procedure and evidence Appeal and judicial review Sentencing Bribery, corruption, sanctions and export controls Consumer protection and cartels Corporate liability Cybercrime and data protection offences Environmental offences Financial services and pensions offences Fraud, forgery, tax and theft offences Health and safety and corporate manslaughter offences Insolvency and Companies Act offences Local authority prosecutions LexTalk®Corporate Crime: a Lexis®Nexis community Daily and weekly news alerts New and updated content Dates for your diary Trackers Useful information Brexit Retained EU Law (Revocation and Reform) Act 2023 (Consequential Provision) Regulations 2024 SI 2024/80: Exercising powers granted by the Retained EU Law (Revocation and Reform) Act 2023 (REUL(RR)A 2023) in the context of Brexit, these Regulations revise 17 items of UK secondary legislation and set aside three others to further the reform of retained EU law. They take...
01 February
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View the related Practice Notes about Zombie companies
PRACTICE NOTES
Comprehensive glossary of UK restructuring and insolvency terms, covering Companies Act schemes, Part 26A plans, IA 1986 processes, and cross‑border concepts including COMI, UNCITRAL and assimilated EU rules.
This glossary sets out numerous expressions regularly encountered in the restructuring & insolvency sphere. Words shown in bold within definitions are themselves explained in other entries in this glossary as well. A Article X The MLIJ contains a single provision named Article X, aimed at jurisdictions that have already implemented the MLCBI, like England, or are weighing its adoption. Article X states: ‘Not withstanding any prior interpretation to the contrary, the relief available under [insert a cross-reference to the legislation of this State enacting Article 21 of the UNCITRAL Model Law on Cross-Border Insolvency] includes recognition and enforcement of a judgment’ (see Practice Note: UNCITRAL model law on recognition and enforcement of insolvency-related judgments (MLIJ): Article X). Asset-backed security (ABS) A form of security anchored by asset pools, for example loans, leases, and credit card receivables. Assimilated law From 1 January 2024, ‘retained law’ has been retitled ‘assimilated law’. The body of domestic law originally arising from EU obligations, created by the European...
21 May
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