Quiet month for business failures masks unresolved problems

Construction-sector administrations have fallen to their lowest monthly level since January, Creditsafe data shows.

The 20 business failures last month marked the lowest number since January’s 10, but the total was broadly the same as July last year, when 19 went under. However, the latest figure is a notable improvement on July 2023, when 29 administrations were reported.

Creditsafe has logged 170 construction business administrations in the year to date, compared with 167 in the first seven months of 2024.

None of the companies in the latest batch were large enough to file detailed turnover and profit figures in their accounts, and nine employed no staff below director level.

One exception was Wirral-based mechanical and electrical specialist JD Engineering (NW) Ltd, which counted contractors Gilbert Ash and Eric Wright Group among its clientele.

The firm, which employed a monthly average of 22 staff in its most recent accounts for the year to 30 September 2024, called in administrators from Begbies Traynor on 2 July.

It recorded net assets worth £515,729 in those accounts, compared with £926,174 the previous year. The firm’s cash at bank reduced from £349,610 to £212,663 and it owed creditors £2m within 12 months.

Elsewhere, Northern Civils Ltd called in Andrew Knowles and Andrew Poxon from Leonard Curtis as joint administrators on 1 July.

The construction, fibre and civils firm “had historically traded profitably”, they said in a notice of proposals, with turnover of about £122,000 and pre-tax profits of £25,000 in its most recent accounts for the year to 31 March 2022.

But the Rotherham-based company’s profitability deteriorated to £14,000 in its 2024 accounts, despite turnover rising to £970,000.

Knowles and Poxon said Northern Civils experienced financial difficulties after expanding too rapidly, as the cost of sales rose eightfold to £785,000 in 2024.

“The overtrading of the business meant that the company was required to subcontract work out [costing the firm £500,000] as it could not cope with the level of work it was introducing,” they added.

This had “a negative impact on the viability of the business”, the administrators said.

Northern Civils owes creditors £736,039. This includes £199,955 to secured creditor eCapital, while secondary preferential creditor HMRC is owed £338,437 for PAYE, national insurance (NI) contributions and Construction Industry Scheme deductions.

But the administrators said they did not expect to recover enough money to pay HMRC or Northern Civils’ unsecured creditors, including plant-hire firm Sunbelt Rentals, which is owed more than £50,000.

Nor do they expect to rescue the firm as a going concern, preferring to pursue a liquidation process or property sell-off to secured or preferential creditors.

Analyst caution

While the July total is relatively low compared with recent months, analysts say the construction sector is still affected by high costs, regulatory uncertainty, weak demand and cautious client spending.

The latest Red Flag report from Begbies Traynor, for instance, found that the number of construction firms in “significant” and “critical” distress has risen by 13.9 per cent since the second quarter of 2024.

At the same time, demand is growing. Project starts rose by 9 per cent in the three months of May to July compared with the equivalent period last year, with private housing to the fore, according to data specialist Glenigan.

“It’s good to see that administrations and insolvencies have slowed” as housebuilding gradually recovers, said Noble Francis, economics director at the Construction Products Association.

However, he expected an uptick in administrations and insolvencies over the next 12 months, saying: “This is likely to be exacerbated by the lagged effects of the six-to-nine-month delays on high-rise developments at gateway two stage [of planning approval] from the Building Safety Regulator [BSR], even before we get to delays around gateway three.”

The BSR gateway bottleneck “has already led to a sharp slowdown in project starts this year and it is likely to adversely affect the cashflow of specialist subcontractors that would have been expecting to work on these projects in [the second half of] 2025”, Francis added.

Heather Powell, head of property and construction at tax advisory firm Blick Rothenberg, highlighted other unresolved issues. “The major skills shortages have not been addressed, and the price of materials continues to increase. If these are not correctly factored into contracts, there will be more failures,” she said.

The impact of April’s rises in employers’ NI contributions, and increases in the living and minimum wage, “are chipping away at already very slim margins and affecting hiring decisions”, said Allan Kelly, restructuring advisory partner at FRP.

He added that some companies are reconsidering how many junior or apprenticeship roles they offer, “which has long-term implications [for] the talent pipeline”.

Combined with BSR-related delays to projects, the overall effect “is that firms are simply treading water – conditions aren’t pushing them rapidly into distress, but they’re not supporting growth either”, Kelly said.