Hundreds of UK building firms, as per a report fell into insolvency following the collapse of Carillion, a construction group. With up to 780 company in the building industry becoming insolvent, this is a rise in insolvency that is devastating.
The first quarter of 2018 was not good for the companies that lead to a 20% rise in the number of UK building firms that are insolvent in the country. The findings were revealed by an analysis of Moore Stephens, the accountancy firm. Now a total of 2,764 building firms are insolvency victims in the 2017-18 financial year. When compared to the past 12 months, this is 6% up.
After Carillion’s stock market value heavily collapsed by 90% following reports that it had around £1 billion amounting in debts and was struggling to fill a hole of £600 million in its pension fund, it filed for bankruptcy in January. At that time, this Wolverhampton-based company had over 19,000 employees. Many of the workers in this second largest building firm in England and Wales were working on Whitehall-commissioned contracts that build roads, hospitals and schools.
Now thousands of these subcontractors lost major contracts following the company’s high-profile liquidation. After the involvement of the firm with insolvency practitioners, the subcontractors were left reeling with substantial debts. Findings by Moore Stephens indicate that Ministers were accused of realising too late that the building company was in a financial crisis. The situation was worsened by the fact that fresh contracts were offered in an attempt to secure the investor confidence.
Speaking for Moore Stephens, Lee Cause said The construction sector in the country felt the shockwaves of the collapse of Carillion considering a significant fifth of building companies in the UK fell into insolvency. The spokesman added that large construction firms are infamous for squeezing the profit margins of the contractors as well as subcontractors working for them. He said it is often hard for these contractors to negotiate against the terms set for them by their bigger clients.
The biggest casualties of the effects of Carillion’s collapse are the small to medium-sized enterprises and specialist subcontractors. Most would have depended on the giant firm for a considerable amount of their work. It is also possible these hard-hit subcontractors would have had to write off virtually everything owed to them by the giant building firm.
The government has called for a comprehensive review of Britain’s auditing industry and calls of reforms sufficed and grew following the collapse of Carillion. The UK wants to look into what could herald huge changes to a sector dominated by firms regarded as the “big four”. BHS, a former high Street stalwart revealed serious inadequacies in the auditing process. It is known that the after Carillion sought the experts of the insolvency practitioners thousands of jobs in the building industry were lost.