Construction company insolvencies

This statistic is taken from the Insolvency Service (dated the 30th September 2021) which reported that insolvencies among construction companies are their highest in almost two years.  285 businesses have gone under in the past month alone.

This is the highest level of insolvencies among construction businesses since November 2019, before the pandemic and the start of lockdown. It is also a 13% increase on the 249 insolvencies in the sector recorded in the previous month.

Industry pressures

Pressures on the construction industry have been mounting. These include the runaway inflation of many key building materials and a lack of skilled workers post-Brexit.

Rising material costs have reduced the profit margins of building contractors in an industry where margins are already very tight. Many contractors have struggled to pass these additional costs on to clients, sending some into insolvency.

Earlier this year, the price of timber rose over 230% from the onset of the pandemic and traded at all-time highs. Other commodities including steel and cement have also seen significant inflation. 

Impact of Brexit

Brexit has also seen wages in the construction sector driven up by a shortage of skilled tradespeople, including carpenters, bricklayers, and plasterers. The shortage of labour threatens to delay construction projects to the point where clients can require compensation from the construction company, potentially threatening their solvency.

Rebecca Dacre, a partner in our Restructuring and Advisory service reports that building contractors are being hit from all sides. They are managing supply chain chaos, spiralling inflation, and a vanishing pool of workers.  Together these are ramping up the financial pressure on the business. For some, the burden is too much and it is pushing them under.

Other issues affecting firms include overtrading, where contractors take on too much work too quickly and suffer from a lack of cash flow to complete the work, and significant tax bills deferred since the start of the pandemic which now needs to be repaid or regularised in Time To Pay arrangements. 

Companies worried about their tax bill should know HMRC is still engaging with many businesses to establish 'Time to Pay' arrangements. Contractors should come forward now and speak to HMRC if they are concerned they won’t be able to repay debt incurred since Covid.

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