Construction firm insolvencies jump to fresh high amid rising costs
Construction business insolvencies have increased to their highest-ever level, a City AM analysis has found, as a barrage of rising costs continues to squeeze many in the sector to the point of collapse.
As many as 840 construction firms appointed liquidators or administrators in the first four months of the year, the analysis of corporate filings found, an increase of more than five per cent compared to last year and a near-doubling compared to typical pre-pandemic levels.
The latest data published by the Insolvency Service showed the sector continued to be the hardest-hit for insolvencies, accounting for 19.5% of all UK company failure in February, a jump of around three percentage points compared to last year and the highest share in three years.
Rising staffing and materials costs as well as a growing scarcity of skilled construction workers are thought to be among the biggest causes of collapses in the sector, a challenge likely to be compounded by high energy costs and a rise in employer taxes. Increasing instability in the sector has also prompted lenders to withdraw the availability of finance, citing higher levels of risk.
“Construction companies are going bust, they’re not being sold on, so that’s resulting in huge redundancies for staff,” a senior insolvency adviser told City AM, adding that the common industry practice of personal guarantees by directors could also trigger a wave of personal bankruptcies.
The collapse of larger players in the construction industry has also had a ripple effect on many smaller subcontractors, who lack the cashflow to plug holes left by the abandonment of major projects.
September saw the collapse of ISG, one of the UK’s biggest contractors with more than £2bn turnover, followed within weeks by one of its lighting subcontractors, Gloucestershire-based Seventynine Lighting.
“Once one of the big boys goes under, it will take down a percentage of the companies underneath them,” an industry source said.
“I’m in the process of putting a commercial refit business into administration and I’ve got three or four suppliers on the phone to me saying: “This is going to take me under”.”
Insolvency rates across all sectors in March were up by more than nine per cent compared to last year to 1,992, Insolvency Service figures showed, while total compulsory liquidations for the first quarter rocketed nearly 15 per cent. However, they remain below the peaks seen during the 2008-09 recession.