Construction company insolvencies – what does the future hold?

In November 2023, Birmingham-based construction company Colmore Tang Construction Limited, entered creditors voluntary liquidation (CVL). How did this happen to a company that in 2018 had a turnover of £95m and employed circa 140 staff? A company that had worked on a number of major West Midlands developments?

As with the failure of a number of other companies in the construction sector, the Covid-19 pandemic had a significant impact on Colmore Tang. Whilst we cannot be 100% sure of all of the factors, it is likely that this was a significant contributory leading to a petition being presented by HMRC for unpaid tax. Following receipt of the petition, Colmore Tang took matters into its own hands by appointing a liquidator by way of a CVL.

It is worth noting that at the time of writing, the Liquidators report has not been filed at Companies House, so the background in to exactly why Colmore Tang ended up in liquidation is not entirely clear.

Despite attempting to downsize since the pandemic and switching its focus on the projects undertaken, Colmore Tang could not prevent HMRC presenting a petition. At the time of entering CVL, they had creditors of almost £2.6m. According to the last set of accounts, they employed circa 16 people, down from 35 the year before. Prior to appointing liquidators, there were reports of the head office phones no longer working and their website expiring/disappearing. In the interest of balance, at the time of the petition being presented, it was understood that Colmore Tang was weeks away from completing a project which would have meant all creditors were paid in full.

The CVL of Colmore Tang came hot on the heels of the administration of Buckingham Group Contracting Limited in October 2023. Their high-profile projects included the development of Birmingham City and Liverpool football stadiums. Similar to Colmore Tang, Buckingham Group’s demise was also in part to pressure applied by HMRC and lead to the loss of 500 jobs and the company owing creditors the not insignificant sum of circa £108m.

At the end of 2023, construction insolvencies had risen by 36% from the time immediately before the pandemic; the Insolvency Service confirming that over 4,000 construction companies had entered insolvency for the year up to 31 October 2023.

The construction sector has suffered greatly in recent times which causes a wider-reaching affect. Suppliers of the companies and parties that have unfinished developments also suffer as a result of the insolvency, not to mention the need to often make people redundant. The consequences can spread far and wide.

What does the future hold?

At the start of 2024, the pressures in the construction sector do not seem to be easing. We are continuing to see a number of construction companies entering insolvency, the more recent administration of Stewart Milne Group being particularly significant. Directors are making the difficult decision of “pulling the plug” on companies that they have invested heavily in trying to keep trading. Will we see any improvement over the full year of 2024? With increasing costs and pressures on margins due to both macro and micro economic reasons, it does not seem likely.

What high-profile insolvencies highlight is that no matter how successful a company may have been in the past, they are not exempt from running into difficulties and subsequently entering into an insolvency process; with the impact of Covid-19 still being felt!

If you are a construction business, or any business for that matter, and you are seeing stress in your finances, or the finances of others, the key is to seek advice as early as possible.