How to escape 'zombie companies'

Companies love to load up on debt - but that can turn them into zombie firms, says Tim Bennett. Here, he explains why that's bad for investors, and how you can avoid buying a zombie.

Anyone who thinks tax is irrelevant to the way you invest should watch out for a huge loophole companies' ability to claim tax relief on the interest they pay on their borrowings. This bizarre anomaly (dividends paid to shareholders are not tax deductible in the same way) has created what the Evening Standard's Anthony Hilton, among many others, calls "zombie firms".

These are bloated with borrowing, "permanently weakening the business and making it more vulnerable to shocks". How do firms get into such a dire position and how can you avoid them?

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.