Construction has been named as the sector with the most companies facing “critical” financial pressure, with almost 6,000 companies on the brink of bankruptcy.
The last Red flag alert The report by insolvency administrator Begbies Traynor, covering the third quarter of 2023, said 5,919 construction firms across the UK were “in critical financial difficulty”.
The proportion of construction companies in this category, which “is often a precursor to formal bankruptcy”, increased by 46% compared to the previous quarter.
Second and third on the list of critical issues were support services (5,741) and real estate and real estate services (4,994).
Together, construction and property companies accounted for almost 30% of all companies in critical financial distress amid the property market slowdown, Begbies Traynor said.
There were 72,257 construction firms in the next most serious category, “significant financial distress”, up from 61,423 in the three months to the end of June.
Overall, the number of UK businesses in critical financial difficulty was 37,722 in the quarter, up 24.9% on the previous quarter.
Begbies Traynor said the rise has come as “pressure from higher interest rates, resilient inflation and weaker consumer confidence took their toll”.
Meanwhile, the number of companies with significant financial problems was 478,176, an increase of 8.7%.
The data is based on a credit scoring system that incorporates factors such as working capital, contingent liabilities, retained earnings and net worth.
Begbies Traynor’s colleague Julie Palmer said that cThe construction industry “appears particularly vulnerable”, noting that an assessment of critical financial problems was “often a precursor to formal insolvency”.
Commenting on the wider results, Palmer said: “Tens of thousands of UK businesses are now in dire financial straits now that the era of cheap money is firmly behind us.
“Companies that had taken on debt at very low rates and were only able to stay afloat during the pandemic thanks to government support are now facing a financial reality check as interest rates higher interest rates affect working capital for the foreseeable future.
“Together with stubbornly high inflation and weak consumer confidence, many of these companies will inevitably go out of business.”
Ric Traynor, Executive Chairman of Begbies Traynor, commented: “I am hopeful that stabilizing inflation and interest rates will begin to curb the growing levels of distress in the economy in due course, but history says this will take time and insolvencies often take their toll peak long after recovery has begun. Unfortunately for many companies, time is not on their side.”
He added: “The outlook remains quite bleak and I expect many more ‘zombie’ companies to continue to fail for some time as the impact of this economic context makes them increasingly unviable.”
