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A 48% rise in construction firms in 'financial distress'

The number of construction firms in 'significant' financial distress has risen by 48% in Q2 2009, when compared to the same quarter in 2008, according to a report by Begbies Traynor.
Red Flag Alert monitors early warning signs of company distress and the latest report by Begbies Traynor, which focuses on Q2 2009, highlights both bad news as well as some good news for the industry.

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.

In Q2 2008 13,079 construction firms were flagged as having significant problems. In Q2 2009 the figure rose to 19,325 firms, an increase of 48%.

In Q2 2008, 639 firms were defined as suffering critical problems but this figure soared by 94% in Q2 2009 to 1,241.

On a positive note, Q2 2009 has brought a 6% drop in the number of construction firms with 'critical' problems when compared to Q1 2009.

The sector has also seen in Q2 2009, a 16% fall in the number of firms with 'significant' problems, when compared to Q1 2009.

Significant problems

Critical problems

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.”

Red Flag Alert measures corporate distress signals by drawing on legal and financial data from a variety of sources for firms that have been trading for more than a year.
15 July 2009


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