Construction sector most vulnerable to insolvency

The tough times affecting the building industry in the UK have been well documented of late, with contracts drying up and money tight for developers.

With many large developments having been put on hold and the London 2012 Olympic Games deals having mostly been allocated or completed, construction bosses are scratching their heads as they try to work out where to find business.

Recent figures from R3 reflect the state of the industry by showing it to be the most at risk of any in Great Britain for firms needing insolvency advice.

According to the data, bankruptcies from business debts in the construction sector shot up by a quarter (24 per cent) in the first three months of this year.

The signs are ominous for firms in the building market, but help is at hand for those who find themselves in trouble with insolvency practitioners able to give useful advice that could help stop a winding up order being issued.

This could also be a solution for those in the wholesale and retail sector, which experienced a rise in bankruptcies in the first quarter of 2011.

In the three months the end of March, there was a 17.5 per cent increase in the number of firms going to the wall in this segment of British industry.

However, the Business Distress Index also shows that the retail sector is most likely to be concerned with its debt levels, with 41 per cent of shop owners worried and eight per cent saying they are very likely to enter into insolvency within the next 12 months.

The cross sector average for expecting such a fate is just two per cent.

Overall, insolvency cases were up by 13 per cent across all sectors in the first 12 weeks of the year, with R3 president Frances Coulson noting that many of these would have been entrepreneurs and owners of small and medium-sized enterprises (SMEs).

"Trading related bankruptcies will be individual-owned, small businesses not covered by limited liability, who either live or die by their financial health," she said.

"They have less flexibility in doing deals with bankers or offering debentures and less security – making them an easier target for creditors."

As such, SMEs might be wise to seek the services of a professional, with insolvency practitioners able to help them come through their problems as best they can.

The highest number of trading-related bankruptcies on record for a three-month period was in the first quarter of 2009 at 2,798.

However, the first three months of this year have provided 2,579, which is pushing worryingly close to the peak figure, Ms Coulson stated.

"It is troubling that we are heading back to levels seen during the previous recession and shows just how tough conditions are for small businesses," the expert claimed.

"Some creditors, including HMRC, are now deciding they have had enough. These increases are running ahead of the business insolvency statistics and could act as a worrying trend."

HMRC recently announced that it is seeking to address the tax gap – the difference between what it should theoretically collect and what it actually does.

If it pursues businesses strongly, an increasing number could require insolvency advice to help them stay afloat.