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maintaining business

Constructing and Maintaining your Business

Authored by Kelly Burton

Kelly Burton

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Approximate read time: 3 minutes

The construction industry is a sector which insolvency practitioners (IP) are sadly all too familiar with.

Rising material costs, a shortage of skilled workers, government policy intervention (or lack thereof), a fall in GDP, declining levels of direct foreign investment, competition and low industry margins are all possible explanations why companies in the sector struggle, find it so hard to continue maintaining business.

Cash flow and contracting issues

Pressure on cash flow inevitably impacts a construction company’s ability to pay on time across their supply chain, and they may need to be extra careful when it comes to managing their credit control and maintaining business

In the same week construction giant Carillion went into liquidation, Kelly Burton, director and insolvency practitioner at Wilson Field, explained how she is used to meeting construction firm bosses and helping them find solutions to what can sometimes be the proverbial brick wall.

“We see well-established companies that rely on one main contract or under price to secure the work, fall foul.

“Under-pricing, coupled with a downturn in work levels can soon result in accumulation of tax arrears, from which many companies are unable to recover.

“Obviously, we aim 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’s very sad when a long-established business fails.”

Hull-based electrical contractor, KRG M & E Services Ltd, founded 40 years prior, went into liquidation in October 2017 in similar circumstances, suffering from very traditional construction based issues.

Having to cease trading

Kelly has also worked with a Hull construction company, which contacted us to investigate their ongoing viability 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, used to specialise in the installation of cladding in large-scale developments.

“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 or shareholders, resulting in one resigning and leaving the company.

“Unfortunately, the remaining director saw little alternative but to cease trading.”

Turning things around

However, as Kelly explains, there are plenty of turnaround situations – Bolton’s Mercer Group was sold in a pre-pack liquidation deal to existing management, safeguarding all 38 jobs.

“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 totalling almost £97,000 were mitigated.”

In summary

The construction sector is facing many challenges in the current economic climate. However, many are finding their main issues come from rising costs and disagreements with contractors. Even the sector’s biggest contenders are susceptible to suffer, if they mismanage their credit agreements or primarily rely on a single large contract, which may or may not last. Although it’s not always possible to save a company; insolvency isn’t always the end of the road, and a company can be saved if the directors act at the right time and want to keep maintaining business.

Whatever type of construction company you own, you don’t have to face your problems alone. We can assess your options and guide you on the best route to take, either allowing your business to recover, or to close in an orderly manner.

 

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