Insolvencies are on the rise across the UK, driven by economic uncertainties and the approaching elections. Just as this quarter comes to a close, the construction industry saw the highest number of insolvencies of any sector during this period. The sector has consistently seen the most financial distress this year. 

According to the latest government data from the Insolvency Service, construction firms represented 17.3% of all insolvencies in England and Wales in April 2024. Close to 400 registered construction businesses were declared insolvent. Over the year to April 2024, a total of 4,401 construction firms went insolvent, marking a 7.6% increase from the 4,089 insolvencies recorded in the previous year. This also marks a 36.8% increase from 2019’s figures. What does this trend mean for distressed business owners and potential buyers in today’s scenario? Let’s explore.

Sector Overview: UK Construction 

Between June 1, 2023, and May 31, 2024, the overall insolvency rate stood at 55.6 per 10,000 companies. In 2023, construction firms made up 13.8% of all registered businesses in the UK, indicating the industry’s disproportionate impact from insolvency. The construction sector led in corporate insolvencies during this period, maintaining the highest number of insolvencies above any other industry in the 12 months to April 2024. 

Within the construction sector, companies specialising in activities like demolition, site preparation, electrical and plumbing installation, and finishing work such as plastering, painting, and glazing were the most affected.  Tight funding, high interest rates, rising labour costs, and stretched payment terms have squeezed margins, contributing to the industry’s financial strain. 

The geopolitical landscape adds further uncertainty, impacting funding and infrastructure spending. With labour access expected to worsen in the summer, construction insolvencies are projected to increase even more in the Q3 2024. A renewed focus on de-risking the supply chain, providing clarity on infrastructure planning to help businesses make informed, long-term decisions when bidding for projects can help stabilise this. 

Why is insolvency so prevalent in the construction industry?

The construction industry frequently faces the highest insolvency rates, driven by a blend of historical challenges and current issues. Some of these include

Covid-19 Recovery Challenges: The pandemic brought the construction sector to a standstill in 2019, and many businesses have yet to fully recover. Factors such as increased labour costs, material shortages, income gaps, reduced demand, and the pressure of repaying Bounce Back Loans have forced several companies into insolvency.

Political Landscape: Uncertainty is often heightened before and during election periods as potential fiscal policy changes can impact the sector drastically. Moreover, the current housing crisis is one of the worst hit crises the country has seen in decades, and high interest rates, currently at a 15-year peak—create significant funding hurdles.

Unfavourable Payment Practices: The construction industry is plagued by late payments and unfair practices, all across the UK. These practices escalate financial strains and contribute significantly to the sector’s high insolvency rates

Insider Tip: How to capitalise on distressed business acquisitions in construction

With predictions for insolvency in this sector to rise even more in the coming quarter, distressed business buyers should focus on acquiring assets that can provide immediate value, enhance operational capabilities, and offer long-term growth potential. These include

Machinery and Equipment: Heavy Machinery like excavators, bulldozers, cranes, and other heavy equipment are essential for large-scale construction projects. High-quality tools and equipment used in specific construction activities such as electrical work, plumbing, and finishing work are also useful

Real Estate and Facilities: Keep a lookout for warehouses and storage Facilities that store materials and equipment and land and development sites that can offer strategic locations for future projects or resale.

Financial Assets

Accounts Receivable: Outstanding invoices can provide immediate cash flow.

Inventory: Existing inventory of construction materials that can be used for current or future projects.

Work-in-Progress and Contracts: Partially completed projects can provide immediate revenue streams, while existing contracts with clients, especially with reputable companies, can ensure continued business and cash flow.

Skilled Workforce: Labour shortages means there is a dearth of skilled workers in the industry. Retaining skilled employees, including project managers, engineers, and skilled labourers, can be critical for continuity and expertise.

Licenses and Permits: Transferable permits for ongoing and upcoming projects can be a goldmine when acquiring a distressed business. Additionally, a company that has necessary licences to operate legally in its region can open up opportunities for newer projects. 

Construction News | Piper Homes Falls Into Administration

Solihull-based property developer Piper Homes has entered administration. In 2022, Piper Homes was recognized as the fastest-growing independent housebuilder in the UK, securing a spot on the Financial Times 1000 Europe’s fastest-growing businesses list. Despite its previous successes, the company could not withstand the financial strain in recent months amidst rising insolvencies in the construction sector.  

The firm experienced a significant decline in turnover, dropping nearly 50% from £38 million in 2021 to £20 million in 2022. This downturn was attributed to a slowdown in open market sales and delays in obtaining planning consent for new site starts. Despite recording a loss of £662,000, the company had projected a recovery for 2023, anticipating a turnover comparable to or higher than 2021, supported by 993 contracted plots in development.

Piper Homes operated across the Midlands, with a focus on semi-rural locations in Worcestershire, Warwickshire, Nottinghamshire, Oxfordshire, Gloucestershire, and the Cotswolds. Notable projects in Nottinghamshire included High Oakham Ridge in Mansfield and Byron Place in Ravenshead.

There has been no comment regarding this administration or the administrators appointed yet. 

Construction News | Geoffrey Osborne Owes £45.1M Debt

Renowned construction company Geoffrey Osborne Ltd. filed for insolvency towards the end of April. According to latest reports by RSM Restructuring Advisory, Geoffrey Osborne Ltd owed £25.9 million to trade creditors when it collapse. According to documents filed with Companies House on June 14, 504 firms were left with unpaid invoices when the contractor went into administration on April 30.

Five companies were owed more than £1 million: Bowmite Electrical & Mechanical Ltd (£1.2 million), Elite Landscapes Ltd (£1.5 million), East West Connect Ltd (£1.4 million), Macai Ltd (£1.3 million), and Rosguill Developments Ltd (£1.6 million).

Geoffrey Osborne’s total debts amount to £45.1 million. This included £16.2 million owed to related firms Osborne Group Holdings Ltd (£8.4 million), Osborne Slinfold (£3.4 million), and Fishbourne No 2 (£4.4 million).

As preferential creditors, Geoffrey Osborne’s employees are set to receive £134,761. Over 100 staff were laid off when the company went under. Joint administrator Damian Webb attributed the firm’s demise to “macroeconomic challenges since Covid and the consequent loss of confidence in the sector from investors and funders.”

RSM’s statement of affairs indicates that a total of £157,000 is recoverable for preferential creditors. HMRC is owed £1.8 million as a secondary preferential creditor.

Over the past three years, Osborne had been reducing its activities as part of a restructuring program. It sold its infrastructure business to London private equity firm Sullivan Street (now Octavius) in 2021, its Innovaré offsite business to Bowmer & Kirkland in March 2023, and its property management division to Cardo Group in September 2023.

Geoffrey Osborne’s most recent accounts, filed in July 2022 for the year ending September 30, 2021, reported a turnover of £337.2 million and a pre-tax profit of £675,000. In April 2022, the firm extended its accounting period from September 30, 2022, to March 31, 2023.

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