The construction industry is a sector we are familiar with as insolvency practitioners.
Rising material costs, a shortage of skills, government policy intervention(or lack of it), the fall in GDP, plummeting levels of foreign direct investment, competition and low industry margins are all rolled out to explain why companies in the sector struggle and eventually face closure.
Pressure on cash flow inevitably impacts companies’ ability to pay on time across the supply chain with construction businesses especially needing to be extra careful when managing their credit control.
In the week we see major player Carillion go into liquidation, Kelly Burton, director and insolvency practitioner at Sheffield-headquartered Wilson Field, explains how she is used to meeting construction firm bosses and helping them find solutions to sometimes what can be the proverbial brick wall.
She said: “We see well-established companies that rely on one main contract or under price to secure the work, fall foul.
“Underpricing, coupled with a downturn in work levels can soon result in accumulation of tax arrears, from which many companies are unable to recover.
“Obviously our aim is to rescue companies as going concerns and we have been successful many times, but when no buyer can be found regrettably the business has to cease trading and it is very sad when a long established business fails.”
A hull-based electrical contractor, KRG M & E Services Ltd, founded 40 years ago, went into liquidation last October in such circumstances.
However, as Kelly explains, there are plenty of turnaround situations – Bolton’s Mercer Group was sold in a pre-pack deal to existing management safeguard all 38 jobs.
Kelly added: “This time underpayments from clients resulted in VAT and PAYE arrears and issues with HMRC.
“It is very frustrating for company bosses as events which were outside of their control threatened the very existence of their business and the jobs of a loyal workforce. Working with their staff, we advised the company and the future now looks very positive.
“We determined that a pre-packaged sale would be in the best interests of creditors. As well as saving jobs, estimated redundancy and holiday pay totaling almost £97,000 were mitigated.”
More recently, Kelly worked with a Hull construction company, which called in Wilson Field to look into the ongoing viability of the company after experiencing cash flow pressures and a build-up of accrued expenses and arrears to HMRC.
Frazer Carter Group, which traded from leased premises at The Deep Business Centre in Hull, specialised in the installation of cladding in large-scale developments.
Kelly said: “The company was initially successful posting profits in its first year of trading.
“It originally relied heavily on sub-contract labour, but problems arose when developers withheld payments citing defective workmanship by the company’s subcontractors.
“Following this there was a breakdown in the relationship between the two directors/shareholders resulting in one resigning and leaving the company.
“Unfortunately, the remaining director saw little alternative but to cease trading.”
Whatever type of construction company you own do not face problems alone. We can assess your options and guide you on the best route to take.