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Figures show Developer Insolvency Insurance is still important

Insolvency experts are warning that despite growing recovery in the construction industry, over 23,000 firms are experiencing severe financial difficulties.

Begbies Traynor’s figures showed that the number of building firms in financial distress reached 23,111 in June, up 31% on the previous year.

Begbies said that the impact of the general election and the consequent delay in spending plans hit smaller businesses particularly hard. Bigger companies, such as hire firms HSS and Speedy Hire, have also issues profit warnings to their investors. The number of companies in financial difficulty rose by more than 2,000 (or 11%) compared to the first quarter of 2015.

Julie Palmer, Begbies partner, said that the construction industry has been struggling with skilled labour shortages, building materials inflation, and supply chain problems for a while now. Together these problems have had a dampening effect on construction activity since the beginning of the year.

She said that more recently, worries over the general election and the prospect of a mansion tax had an additional impact on output, causing a massive increase in financial distress across both contractors and suppliers for this quarter.

Structural Defects Insurance

According to Begbies, a business in significant distress is one that has experienced ongoing deterioration in financial areas such as profits or working capital, or faces legal action for unpaid invoices totalling up to £5,000 over the previous three months.

The Construction Products Association, stated that the industry was actually in better shape than the Begbies figures implied, but warned that recovery can be a perilous time for companies because excessively speedy growth puts pressure on cashflows.

Official figures are expected to reveal that the economy’s overall rate of expansion has nearly doubled to 0.7% between April and June, but construction’s input is likely to be low after the declines experienced in April and May.

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