Should You Save or Close Your Zombie Company in Singapore?

Last updated on July 5, 2021

employees walking home like zombies

At some point in our lives, we are likely to have seen (or stumbled across) horror movies. One such stereotypical depiction of a horror movie villain is the “zombie” – it looks utterly discombobulated, with its ragged bones, droopy eyes and rotting skin features.

The zombie barely seems to have the energy to move actively compared to the healthy adult sensibly running away from it. Yet, somehow, it is able to grind its way slowly and menacingly toward its next target to devour its brains and cause mayhem to anyone unfortunate to be near it.

While we should be thankful that zombies remain in the realm of fiction, you may be surprised to find out that there might be “zombie” companies in real life – companies that are not doing very well but are somehow managing to grind it out and stave off bankruptcy. This article aims to advise business owners on issues pertaining to “zombie” companies, and will deal with concerns such as:

What is a Zombie Company?

There is no universally agreed-upon definition of what constitutes a zombie company. However, a common understanding of a zombie company is a company that earns just enough revenue, or has sufficient access to credit, to continue its operations and service part of its debt, but is unable to pay it off in full.

In that sense, the analogy to the zombie can be easily seen: the company just tends to limp along, unable to earn enough to discharge its debt but is somehow kept alive, either by its own volition or by being supported through external measures.

The term “zombie company” was initially used to describe Japanese companies during the 1990s decade that were kept alive by loans provided by Japanese banks, despite the fact that such companies were inefficient or failing.

However, it is now recognised that there are many zombie companies all around the globe. This is especially all the more so in the current pandemic-stricken world, where there are substantive fiscal measures put in place to help businesses remain afloat.

Signs That You are Running a Zombie Company

There is no hard and fast set of criteria in ascertaining whether you are running a zombie company. However, there are few factors you can consider in answering this question:

  • First, you need to see if your company is earning enough income to repay your principal debts and still make a profit. If your company is earning insufficient revenue such that it can offset only the debt interest expenses, then the company is not “growing” and is more likely to be limping like a zombie;
  • In a related vein, if your company also constantly relies on fresh credit provided from external sources, such as banks or monetary authorities, to service its debt obligations, then it is likely that the company is a zombie;
  • Whether your company lacks additional resources for growth for capital investment, or research and development. This means that your company is more likely to be a zombie if it is very reliant on its income or its loan to sustain its daily operations and service its debt;
  • Whether there are any signs that your company is running in an inefficient or unproductive manner. This could point to the fact that your company is not looking at ways to re-engergise itself and is in fact satisfied with being kept afloat by current measures already in place (which in turn demonstrates the company is grinding from one business cycle to another).
  • Whether your company could face bankruptcy or become insolvent based on one poor market event, such as experiencing poor company performance due to market disruption, or where banks or governmental authorities no longer provide additional credit.

If Your Company is a “Zombie”, What Can You Do About It?

Unlike zombies in horror movies, which actually have to be put down, zombie companies can be reinvigorated and escape from their zombie status. Thus if you believe you are running a zombie company, you have the choice of rehabilitating it so that it is actually in a position to seize growth opportunities upon the conclusion of the market-disrupting event (such as the COVID-19 pandemic).

There have been instances where companies have managed to ride out their zombie status, including famous companies such as Boston Scientific and the American telecommunication giant Sprint Corporation.

Take note, however, that this is a strategic decision that you would have to reflect upon carefully. For a company to be freed from its zombie status, there must be viable growth opportunities for the company to pursue so that it no longer has to rely on financial handouts or credits from banks to continue its daily operations.

Thus, for example, if your company had been doing well before the COVID-19 pandemic, and became a zombie company only due to the effects of the pandemic, then the return of normal consumer habits after the pandemic may signify the return of the company’s fortunes and profits, which in turn points toward your company’s rehabilitation.

Conversely, if your company had already been facing a slump even before the pandemic, it is not as likely that your company would be able to be resuscitated after the pandemic ends.

Do not be worried if you realise that you will have to shut down your company after evaluating its health. In a time of such unprecedented challenges being faced by businesses, companies may find that there may be certain factors that are no longer in their control and that closing may be the inevitable option. This may just prove to be a short-term setback, as there is nothing stopping you from setting up another company once things have picked up.

However, if you are of the opinion that your company has viable growth opportunities and just needs to ride out the storm, you can consider looking into governmental support measures to help you tide over until the effects of the pandemic fade into obscurity.

For example, the Singapore government has provided a number of financial grants to help small-and-medium enterprises to cope with the effects of the COVID-19 pandemic, and you can find information on such grants (and the steps for applying for them) here.

It is definitely a challenge to be a business owner of a company in present times, especially where the effects of the COVID-19 pandemic are still running rampant in our society. To that end, you may need to ask yourself whether it is time to continue keeping your zombie company alive and seek to rehabilitate it, or whether it is time to bring it to an end.

You are also strongly encouraged to get in touch with a corporate lawyer, especially if you need legal advice on how you can wind up a company. The lawyer can advise you as to the options that you have, and the merits of undertaking each option.

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  2. Managing Director vs CEO in Singapore: Roles and Obligations
  3. Guide to Directors' Remuneration in Singapore
  4. Directors' Duties in Singapore
  5. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
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  3. How to Hold a Board Meeting in Singapore
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  4. How to Issue Shares in a Singapore Private Company
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  3. Winding Up a Singapore Company: Grounds and Procedure
  4. Closing Your Singapore Business: What You Need to Settle
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