Zombie companies typically struggle to adapt to changing market conditions or face fundamental problems within their business models. Picture: 123RF/grandfailure
Like these human zombies, because they lure unsuspecting creditors and lenders into a false sense of security, zombie companies have the potential to cause a similar destructive pattern by “attacking and eating” other companies. Then followed the riots in KwaZulu-Natal and Gauteng in 2021. At the time we thought it could not get any worse, but it did. During June 2020, at the height of the pandemic, it was anticipated that our unemployment rate could reach 30.1% in the first quarter of 2023. According to Stats SA, the official unemployment rate was actually 32.9%, and the number of employed increased by 258,000 to 16.2-million in the first quarter compared to the fourth quarter of 2022.
What was offered to them was a lethal concoction of further debt, lower interest rates and an opportunity to dig themselves into an even deeper hole. The net effect of this is that the financial distress experienced by companies before the pandemic has since turned into a financial disaster, often due to further intentional reckless conduct by its management and directors in direct contravention of the Companies Act.