MPG has witnessed Insolvency rates within the construction industry augment faster within the past two years than in most other industries. Given the uncertainty ahead for many construction firms, obtaining early professional advice is crucial.
The term ‘insolvency’ indicates a company’s inability to pay debts as and when they fall due or (from a balance sheet perspective) the value of a company’s liabilities being greater than the value of its assets. Each can result in a company being placed into liquidation or administration. The aim of these processes is to recover all available assets, enabling them to be disposed of to generate proceeds which can be distributed to creditors to satisfy their debts.
In the construction industry there is usually a delay between work being performed and payment being received. The lag in monetary recovery can result in businesses suffering cash flow issues because they have to wait up to 90 days or more for invoices to be paid, or because in some cases (for various reasons) they may not be paid at all. Late payments and bad debts are the main triggers for insolvency.
Finally, the domino effect reflects the impact which one party higher up the chain becoming insolvent can have on others, such as a main contractor on a subcontractor. The failure of one business can have repercussions for others in the chain who were reliant on the income from the project to fund their works.
There are many early warning signs that an employer, contractor or subcontractor could be facing financial difficulties. These may include Cash flow issues, attempts to negotiate changes in payment terms such as renegotiating credit limits, unsatisfied court judgements, County Court Judgements or High Court Writs being issued against them, and Suspension of work without explanation or surprising/uncommercial omissions from a project.
Insolvency can affect all businesses regardless of turnover. MPG has a wealth of industry knowledge, our expert advisors are waiting to take your call.