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-energise 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.

Appointment and Removal of Company Officers and Other Key Personnel
  1. What is a Nominee Director & How to Appoint One in Singapore (With FAQs)
  2. Independent Directors: Who are They and What is Their Role?
  3. Board of Advisors: Who Are They and What Is Their Role?
  4. Appointing Company Directors in Singapore: Eligibility, Process etc.
  5. Managing Director vs CEO in Singapore: Roles and Obligations
  6. Guide to Directors' Remuneration in Singapore
  7. Directors' Duties in Singapore
  8. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  9. How to Remove a Director from a Company in Singapore
  10. Removal and Resignation of Company Auditor in Singapore
  11. Appointing a Company Secretary: Roles and Responsibilities
  12. Appointing an Authorised Representative for Foreign Companies in Singapore
  13. Process Agents in Singapore
Holding Meetings
  1. What are Annual General Meetings (AGMs) in Singapore?
  2. How to Hold Extraordinary General Meetings (EGMs) in Singapore
  3. How to Hold a Board Meeting in Singapore
Shareholder Matters
  1. Share Buybacks in Singapore: Procedure, Cost and More
  2. How to Split Shares (or Stocks) in a Singapore Company
  3. 2 Ways to Remove a Singapore Company Shareholder ASAP
  4. What are Treasury Shares? Guide for Singapore Companies
  5. A Guide to Paid-Up Capital in Singapore
  6. Preparing a Register of Shareholders for a Singapore Company
  7. How to Issue Shares in a Singapore Private Company
  8. Guide to Transferring Shares in a Singapore Private Company
  9. Your Guide to Share Certificates in Singapore: Usage and How to Prepare
  10. Shareholder Rights in Singapore Private Companies
  11. Shareholder Roles and Obligations in Singapore Companies
  12. Dividend Payments Guide for Singapore Business Owners
  13. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  14. How to Reduce the Share Capital of Your Singapore Company
  15. Buy-Sell Agreements: How to Write & Fund Them in Singapore
  16. Oppression of Minority Shareholders
  1. Is Your Business Collaboration Competition Law-Compliant?
  2. Explained: Registered Filing Agent for Singapore Businesses
  3. Transfer Pricing Obligations of Singapore Companies
  4. Adhering to Trading Sanctions and Restrictions in Singapore
  5. Cyber Hygiene Compliance Guide for Singapore Companies
  6. Corporate Social Responsibility For Businesses in Singapore
  7. A Guide to Food Standards in Singapore
  8. Essential Regulatory Compliance Guide for Singapore Companies
  9. Dormant Companies and Their Filing Obligations in Singapore
  10. Anti-Money Laundering Regulations and Your Business: What You Need to Know
  11. Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
  12. Can Singapore Businesses Legally Conduct Lucky Draws?
  13. Restaurant Inspection and Food Safety Rules in Singapore
Company Management
  1. Does Your Company Need a Legal Team (In-House Counsel)?
  2. Acqui-Hiring of Singapore Companies: How Does It Work?
  3. Can a Company Director Take Legal Action Against Another Director?
  4. How to Change the Name of Your Singapore Company
  5. Can Directors be Liable for Company Debts in Singapore?
  6. Company Loans to Directors/Shareholders in Singapore
  7. 3 Types of Insurance Every Singapore Business Needs
  8. Creating and Registering Charges in Singapore: Guide for Companies
  9. Guide to Effective Business Continuity Planning in Singapore
  10. Business Asset Sale & Disposal in Singapore: How Do They Work?
  11. 5 Ways To Resolve Business Partnership Disputes in Singapore
  12. How to Commence a Derivative Action on Behalf of a Company in Singapore
  13. Business Will: How to Pass on Your Business to Your Successors in Singapore
Company Documents
  1. Record-Keeping Requirements for Singapore Companies
  2. Company Constitutions in Singapore and How to Draft One
  3. Company Memorandum and Articles of Association
  4. Company Resolutions: What are They?
  5. Board Resolutions in Singapore
  6. Minutes of Company Meeting in Singapore: How to Record
  7. How to Set Up a Register of Controllers
  8. How to Set Up a Register of Nominee Directors
  9. Guide to Filing Financial Statements for Singapore Business Owners
  10. Filing Annual Returns For Your Business
Tax, Accounting and Audit Matters
  1. Carbon Tax in Singapore: What is the Rate and Who Must Pay?
  2. Laws and Penalties for GST Evasion in Singapore
  3. 6 Common Taxes in Singapore For Individuals & Businesses
  4. Singapore Corporate Tax: How to Pay, Tax Rate, Exemptions
  5. Start-Up Tax Exemption Guide for New Singapore Companies
  6. GST Registration: Requirements and Procedure in Singapore
  7. What is Withholding Tax and When to Pay It in Singapore
  8. Singapore Influencers: Here's How to Calculate Your Income Tax
  9. Investigating Tax-Evading Business Owners in Singapore
  10. Small Business Accounting Services in Singapore
  11. Company Audits in Singapore: Requirements and Exemptions
Data Protection
  1. Victim of a Data Breach? Here’s What You Can Do
  2. Data Room: Should Your Singapore Company Set Up One?
  3. Must You Notify PDPC About a Data Breach in Your Business?
  4. Suspect a PDPA Data Breach? Here's What to Do Next
  5. Summary: Your Organisation's 10 Main PDPA Obligations
  6. Essential PDPA Compliance Guide for Singapore Businesses
  7. PDPA Consent Requirements: How Can Your Business Comply?
  8. Is It Legal for Businesses to Ask for Your NRIC in Singapore?
  9. How To Prevent Unauthorised Disclosure When Processing and Sending Personal Data
  10. Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
  11. Drafting a Comprehensive Privacy Policy For Your Singapore Website
  12. GDPR Compliance in Singapore: Is it Required and How to Comply
  13. Appointing a Data Protection Officer For Your Business: All You Need to Know
  14. How Can Companies Dispose of Documents Containing Personal Data?
  15. Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
  16. How to Legally Install CCTVs for Home/Business Use in Singapore
  17. Is Web Scraping or Crawling Legal in Singapore?
  18. Legal Options If Employees Breach Confidentiality in Singapore
  1. Social Media Marketing: Legal Guide for Singapore Businesses
  2. Your Guide to E-commerce Website Terms of Service in Singapore
  3. Dealing with Defamation of Your Business: Can You Sue?
  4. Sending Email Newsletters That Comply With Singapore Law
  5. A legal guide to drafting a social media policy for your company
  6. Your Guide to a Media Release Form in Singapore
  7. Your Guide to an Influencer Marketing Agreement in Singapore
  8. Outdoor Advertising: How to Legally Display Public Ads in Singapore
Fintech and Payment Services Advisory
  1. A Guide to Digital Bank Regulation in Singapore
  2. Applying for a Major Payment Institution Licence in Singapore
  3. Applying to the MAS FinTech Regulatory Sandbox
  4. Payment Services Act Licensing Guide for Fintech Businesses
  5. How to Get a Payment Service Provider Licence in Singapore
  6. Financial Adviser's Licence Guide for Singapore Businesses
  7. Capital Markets (CMS) Licence Requirements in Singapore
  8. How to Offer E-Wallet Services in Singapore: Licensing Guide
  9. Digital Payment Token Services Licence Guide in Singapore
  10. How to Legally Offer Crypto Services in Singapore
  1. Starting a Franchise in Singapore: What Franchisors Should Look Out For
  2. Running a Franchise in Singapore: What To Look Out for as a Franchisee
Debt Restructuring
  1. What is Judicial Management and How It Works in Singapore
  2. Schemes of Arrangement: How They Work and How to Apply
  3. Informal Debt Restructuring and Workout in Singapore
Ending a Business
  1. How to Restore a Struck-Off Company in Singapore
  2. Claw-Back of Assets From Unfair Preference and Undervalued Transactions
  3. Should You Save or Close Your Zombie Company in Singapore?
  4. Voluntary Suspension of Business in Singapore: How to Handle
  5. Winding Up a Singapore Company: Grounds and Procedure
  6. Closing Your Singapore Business: What You Need to Settle
  7. Striking Off a Company
  8. Restoring a Company That was Struck Off Without You Knowing
  9. Dissolution of partnerships in Singapore
  10. What Should a Creditor Do When a Company Becomes Insolvent?
  11. How to File a Proof of Debt Against a Company in Liquidation
  12. Validation of Payments Made by Companies Being Wound Up