Credit, Collections & Insolvency News
Latest analysis by the Insolvency Service found that companies in the construction sector faced the most insolvencies last year.
The five industries (in accordance with SIC 2007) that experienced the highest number of insolvencies in 2023 were Construction (4,371, 18% of cases with industry captured).
This was followed by Wholesale and retail trade; repair of motor vehicles and motorcycles (3,929, 16%).
Accommodation and food service activities (3,727, 15%) was third. Administrative and support service activities (2,299, 9%) fourth with Professional, scientific and technical activities (2,001, 8%) in fifth place.
Higher insolvencies in 2023 have been driven primarily by increases in the Accommodation & food service, Wholesale & retail trade and Manufacturing sectors, whereas the Construction and Administrative & support services sectors have shown a much smaller increase.
Kelly Boorman, National Head of Construction at RSM UK, said “The quarterly rise in insolvency within the construction sector in Q4 2023 reflects the acute pressure for businesses amidst a year of major slowdown in the pipeline of work due to supply chain disruption, surging material prices and labour shortages. Moving into 2024, there is some reason for cautious optimism though, as interest rates stabilise and inflation continues to fall, meaning businesses will start to see funding becoming more readily available later in the year.
“Throughout 2023, the construction industry has consistently seen the highest number of insolvencies out of any UK sector, something which is likely to continue at the start of 2024, as it will take time for funding to be released. Similarly, despite more favourable economic conditions, the industry needs to start making acquisitions to build back its supply chain, which in turn, will impact the speed at which projects are mobilised. However, the retention reporting rules coming in from April 2024 for contractors bidding on government contracts may help to improve cash flow and strengthen the supply chain, reducing the number of insolvencies.’
“Although we expect insolvencies to stabilise towards the end of 2024 as the market picks up, businesses will need to manage their pipelines closely to ensure they don’t fall into the overtrading trap. Margins are low in construction, and it can only take a couple of poor-performing contracts to see companies go bust in the supply chain. Businesses are trying to combat this by being selective in their procurement for new work, with many reducing activity and some exiting major contracts to preserve working capital and manage risk. Collaboration in the supply chain during the bid process and the use of data and technology during design through to delivery of projects is a key focus for businesses. It is important that government looks to support innovation in the industry and encourage more collaboration.”
Gareth Harris, Restructuring Partner at RSM UK said “High levels of debt post-Covid and a more unforgiving stance on forbearance from creditors, particularly HMRC, is a key driver in this continued uplift in insolvency. With ongoing economic uncertainty and low growth, construction (alongside many other sectors) will continue to face financial distress this year, so directors need to engage with advisers and all stakeholders early to find a solution.”
