Rise in construction firms in 'financial distress'

The number of construction firms in "critical financial distress" risen by 48% over the past year, according to the latest data from insolvency specialist Begbies Traynor. In Quarter 2 2008 13,079 construction firms were flagged as having significant problems. In Quarter 2 2009 the figure rose to 19,325 firms, an increase of 48%.However, there was a fall in the level of companies in distress between the first and second quarters of this year.

Companies experiencing significant problems are defined as those with either a court action and/or average, poor, very poor, insolvent or out date accounts. Firms with critical problems are defined as those with CCJs totalling £5,000 or more and/or Wind-Up petition-related actions.

Nick Hood, partner at business consultancy Begbies Traynor, said: “Although the construction sector has seen the biggest swing from 94% year on year to -6% quarter on quarter in the number of companies facing 'critical' problems, the sector is not out of the woods. Whilst construction projects commissioned three years ago may still be ongoing, the demand for new buildings cannot continue whilst unemployment continues to rise and credit remains difficult to come by. Within the construction sector the lag on any economic recovery is likely to be more pronounced given how far it sits down the food chain.”