Quiet August for business failures adds to optimistic mood | Construction News

What a difference a year makes. A total of 18 companies went into administration in August 2024, according to the latest monthly data from Creditsafe, less than half of August 2023’s toll of 44.

This August’s figure was the second-lowest monthly total since January 2023, reflecting a slower pace of business failures so far in 2024. There were 184 administrations in the first eight months of 2024, down from 247 in the same period last year.

Three firms on the latest list were required to file turnover and profit figures with Companies House. The biggest of these was envelope specialist Skonto Plan UK, which called in administrators from Evelyn Partners on 14 August.

The subsidiary of still-solvent Latvian company Skonto Plan began operations in 2009. Its most recent accounts, covering the 2022 calendar year, stated that it employed a monthly average of 40 people.

Skonto Plan UK posted a pre-tax loss of £205,700 from revenue of £50.4m. In 2022/23, the firm worked on large residential schemes such as Palmerston Court (pictured) in south London for main contractor Mace. This year, according to Skonto Plan’s website, the UK subsidiary has been working on Mace’s office and retail development at 100 Fetter Lane in London in an £8.1m facade subcontract.

Telecoms and energy contractor Utility Services (NE) Ltd’s latest accounts, covering the year to 30 September 2022, showed a £4.2m drop in turnover to £12.7m. Its pre-tax loss worsened from £620,700 in 2020/21 to £746,400 the year after.

The accounts showed that the firm relied on a single client (Openreach) for about two-thirds of its turnover. A key unnamed customer “withdrew a number of jobs due to their budget overspending, which had a significant impact” on the company’s bottom line in 2021/22, directors said. The firm’s accounts for 2022/23 are overdue, and on 7 August, administrators from FRP Advisory were called in. Parent company Map Group (UK) Ltd remains in business.

Rescue missions

The Ridgespear group of underfloor heating product manufacturers accounted for six of the firms on the latest list. Administrators from PKF Francis Clark were appointed on 6 August for holding company Ridgespear Ltd plus its subsidiaries Omnie Ltd, Timoleon Ltd, Bauserv Ltd, Circoflo Ltd and Heat Direct Supplies Ltd.

Exeter-based Ridgespear’s most recent accounts for the 2022 calendar year showed a slight increase in turnover, from £10.5m to £11.2m. But its pre-tax loss deepened by more than £1m to reach £1.3m. Short-term loan debt remained stable at £484,000, though Ridgespear owed £1.9m in loans repayable after more than 12 months.

Directors mentioned “economic uncertainty” in the construction industry, particularly related to the housing market slump. “The resulting subdued activity has intensified competition in the underfloor heating market,” they added.

Attempts to diversify into the renewable energy, decarbonisation and property renovation markets proved unsuccessful. The firm and its subsidiaries faced “significant pressure from trade creditors” with county court judgements and winding-up petition threats, according to the statement of administrator’s proposals.

However, Genuit Group acquired the Ridgespear companies via a pre-pack sale, saving 61 jobs in the UK. The administrators said the deal “is expected to result in a return to secured and preferential creditors”.

Other companies were bought out of administration in August. Modular housing specialist ModPods International called in KRE Corporate Recovery on 12 August after relocation costs hit its bottom line. The firm was too small to file full accounts, but ModPods posted fixed assets of £1.7m in its most recent results for the year to 31 March 2023.

All 122 employees were made redundant in July but the administrators found a buyer in a pre-pack sale: Midlands-based industrial and commercial property development firm HPG Developments.

Bristol-based timber specialist Xylotek was partially acquired out of administration by Carpenter Oak Build Ltd for £135,000, after it called in administrators from ReSolve. The deal saved Xylotek’s 16-strong workforce.

The firm was established in 2018 and turnover peaked at £7.9m in the 2023 calendar year. The administrators said that Xylotek expanded “at an unmanageable pace, causing internal complications and resulting in losses on major projects”. The company suffered “significant bad debt when its main [unnamed] subcontractor failed”, they added.

Outlook

The slowing pace of business collapses was reflected by the latest Insolvency Service figures, which showed that 4,303 construction firms went into administration or liquidation in the year to July – the lowest rolling annual total since 2020.

Optimism has been fuelled by the decision on 1 August by the Bank of England to cut its base interest rate by 0.25 percentage points. Brendan Sharkey, construction partner at accountancy firm MHA, told Construction News that the market was already reacting to the fact that interest rates “have peaked and are expected to go lower; this improves investment opportunities and the housing market”.

The government’s autumn budget on 30 October “may stall some investment but the sentiment is generally very positive”, Sharkey added.

Emyr Jones, senior underwriter and construction specialist at credit insurer Atradius, said lenders remain cautious despite the August base rate cut. “Appetite of lenders to the construction sector remains subdued but further interest rate cuts will be a welcome boost, especially for highly leveraged businesses,” he said.

He added that he expects insolvency rates in the non-residential construction market to ease “and payment delays are starting to reduce”.

But the insolvency impact of subdued demand in the residential market “is largely yet to materialise”, Jones told CN. He added: “We expect that this will be weighted towards smaller businesses with less of a liquidity buffer,” although he added that some larger firms may still be vulnerable.