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Slowing in the number of construction firms facing critical financial distress

The latest data from insolvency specialist Begbies Traynor shows that overall the number in significant distress, defined as those with a court action or average, poor, very poor, insolvent or out-of-date accounts, dropped 16% from 22,966 to 19,325, which was the biggest decline across all sectors.

In the second quarter of 2008 some 13,079 construction firms were flagged as having significant problems and this increased by 48% to 19,325 in the second quarter of 2009.

Those suffering from critical problems amounted to 639 in the second quarter of 2008 and this soared by 94% in the second quarter of 2009.

But the second quarter of 2009 has also seen a 6% drop in the number of construction firms with critical problems when compared to the first quarter of 2009.

'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,' explained Nick Hood, partner at Begbies Traynor.

'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,' he said.

'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,' he added

The biggest year-on-year jump in the number of firms in critical distress, that is companies with court judgments totalling £5,000 or more and/or winding-up petition related actions, was seen in the wholesale sector, with a 185% rise.