Merchants face more builder insolvencies

Published:  05 May, 2010

LONDON: Merchants should be prepared for more insolvencies of builders warn insolvency experts.

Lack of working capital will lead to an increase in failures despite improvements in construction activity.

Nick Hood, London partner of a restructuring specialist Begbies Traynor, said: "The greatest danger to construction companies is that they will fail even as they start to experience growth, because they find that the extra working capital needed is not available, or that they have left it so late to look for additional funding that they are too far back in the queue."

The Federation of Master Builders warned that many smaller building companies - many of which are family run - "would either go out of business or simply give up as things got too tough".

The number of building companies experiencing significant or critical financial problems has risen 30% since the start of the year, according Begbies Traynor.

Insolvencies in construction are broadly in line with most sectors and have fallen, with administrations down 46% in the first quarter of 2010 compared with the same period last year.  Insolvencies in the construction sector fell 4% in the first quarter of 2010 from the last quarter of 2009 according to figures from Price Waterhouse Coopers.

However, in the past 12 months, the number has risen 10% on the previous year.

It is the second half of this year that insolvency specialists believe could lead to a pick-up in the number of companies collapsing.

Richard Fleming, UK head of restructuring at KPMG, said that the rebound in demand for new building work could, rather than rescuing ailing companies, push some businesses over the edge.

There is also concern that it may become harder for companies to access "time to pay" arrangements, a government programme that allows them to reschedule tax payments, of which the construction industry is believed to be the heaviest user.

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