Liquidation in the Construction Industry: Key Considerations

Do you have a company in the construction industry that’s been struggling to stay afloat? We can help. In this blog, we’re looking into key considerations for liquidations in the construction industry.

The UK construction industry

The construction sector has been hit hard by insolvencies for many years. This can be extremely challenging for directors to deal with and highlights the need to know what to look for regarding company failure.

In September 2024, 4,264 construction companies became insolvent. This is a high figure and indicates a 32% increase from 2019 regarding insolvency in the construction industry. Rising costs and economic fluctuations have made it difficult for construction businesses to stay afloat.

Even some of the largest construction firms have experienced insolvency over the last few years. There are many reasons why construction businesses may become insolvent, and sometimes, it has nothing to do with the director’s actions.

What is insolvency?

Insolvency is the term used to describe a company that cannot afford to pay its debts when they fall due, or its liabilities are worth more than its assets. These companies may be in financial distress.

You may also hear the term ‘solvent’. This is used to describe a company that can afford to pay its debts when they fall due, and its assets are worth more than its liabilities.

An insolvent company must be cautious about the actions they take. It’s crucial that you act quickly in this scenario; otherwise, it can reflect negatively on you as the company director.

What happens when you enter liquidation?

There are various liquidation methods that you might use, but these ultimately depend on your situation. For insolvent companies, the best option is to use a creditors’ voluntary liquidation. This will reflect positively on you.

You can use a member’s voluntary liquidation if your company is solvent. This allows you to pay off debts over a longer period of time.

Other options include a compulsory liquidation, which is best avoided, a company voluntary arrangement (CVA), administration or a company dissolution (strike-off). Some of these are known as company closure methods rather than liquidation. Compulsory liquidation is forced upon companies facing financial difficulties using a winding-up petition.

Due to there being so many options for liquidation and company closure, it’s difficult to outline the process as there are different stages to each of them.

We’ll outline some steps for the most common liquidation method, a creditors’ voluntary liquidation.

construction industry liquidation

Seek advice

As soon as you notice that your company is struggling financially, you should seek professional advice. Taking action early will reflect positively on you throughout the liquidation process. Once you have all of the information, you need to make a decision.

Appoint a liquidator

Your liquidator may also be referred to as a licensed insolvency practitioner. You will need to appoint an insolvency practitioner for most of the methods listed above. The insolvency practitioner’s role is to communicate with creditors, organise the liquidation and try to find money to pay creditors.

Insolvency practitioners will use a range of methods to attempt to find money in your company, including the sale of company assets. For your construction company, this may involve selling machinery and other stock.

When choosing an insolvency practitioner, you must ensure they fully understand your situation. Make sure you get all liquidation costs in writing before you appoint them, as this can help to save money in the long run. You also need to ensure that you have been honest about any personal guarantees and overdrawn director’s loan accounts.

Company closure for construction firms

The liquidator will take care of all business aspects following the appointment. They will try to recoup money for your creditors, but some creditors may be left unpaid.

During the liquidation process, a director’s conduct report will be completed. This report aims to highlight the actions of the director and checks for wrongdoing. It also checks for financial instability and looks at the company’s bank accounts over the last three years. This information is passed on to the Insolvency Service.

Directors who have acted responsibly will have nothing to worry about. Directors who have committed wrongdoing will face the consequences of their actions. If you are concerned about any potential wrongdoing, then you should seek advice early. It’s much better to have this out in the open in the beginning; otherwise, you could find yourself in trouble.

If the conduct report is completed and no wrongdoing is found, then the company’s outstanding debts will be written off.

If wrongdoing is found, the construction company director may find themselves being personally liable to pay the debts. They may also face fines, director disqualification or even prison sentences.

These wrongdoings will be uncovered, so if you are worried about an action you have taken, please be honest and don’t bury your head in the sand.

How to spot issues for your construction company

One of the best ways to have a positive outcome is to know how to spot issues for your company or one of your supplier’s companies.

  • Cash flow issues
  • Late payments
  • Failing to pay staff on time
  • Supply chain issues
  • Re-negotiating payment terms
  • Re-negotiating contracts
  • Stopping work with no explanation
  • Changing the project
  • Removing staff from the construction project
  • Delayed financial accounting
  • County Court Judgements against them

Knowing these signs makes it easier to take the correct steps to protect your company and its financial health.

Remember, if you believe your company is becoming insolvent, you need to seek advice as soon as possible. Financial difficulties can be extremely stressful to deal with.

We hope this blog has been helpful regarding liquidation in the construction sector. At 1st Business Rescue, we are on hand to support you with all aspects of your company. Please contact us if you require any support.

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