There is no proper definition of a zombie company but in essence, it is a company that makes enough revenue to continue operations and service a portion of its debt. There is little to no growth and the company is constantly looking for lifelines from either loans, external funding or government grants.
Here are some telltale signs that a company is a zombie company:
- The company is making enough revenue only to service the interest of its debts
The company cannot make enough to pay off the principal amount on its debts and there is no probability of the company ever being able to. - Inefficient processes and a lack of desire or effort to restructure to increase efficiency
The company is merely looking to get by day to day. It is not looking to increase productivity by implementing new processes. Methods of running the company that was used for years are still cored to its operations despite the fact that companies are moving towards digitisation and innovation. - Lack of resources for growth
There is a lack of investment, innovation or research and development in the company. There is little to nothing that can take the company on a sustainable growth path. - The company could face financial woes in the event of a poor market event
In the event of a recession or a shock to the particular market that the company is in, the company could become bankrupt. - The company is constantly looking for funding
Instead of focusing on the core business of the company, the company is constantly looking for external funding. Either through the injection of funds from external investors or government grants. A portion of resources is being channelled to this effort even though the company is not doing particularly well.
Here are some steps the management and shareholders can take to address the company if it seems to be a zombie company
- Close down the company
The company is not performing as efficiently as it can. It is saddled with debt and it might be more prudent to negotiate with the creditors on clearing this debt and eventually closing the company. This might be wise as the next poor market event might be around the corner. - Restructure the company
This is possible with the assistance of proper management or consultants that are well versed in dealing with company processes. If other companies in the same industry are doing well but your particular company is not, it may be because of the lack of expertise in running the company. You should seek assistance in restructuring not only the company’s processes but its financial structure and debt. There are many government grants that are out there to aid companies, especially during the COVID-19 pandemic.
If you need assistance with matters relating to company restructuring, you may contact us at [email protected]. We have qualified PMCs (Professional Management Consultant) to assist you with restructuring your company.
You may also consult our business consultants at SG Business Advisory.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
Yours Sincerely,
The editorial team at Singapore Secretary Services
For more useful articles and videos, visit the Singapore Secretary Services resource page.
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