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Construction firms putting themselves out of business up 45pc

The number of construction companies voluntarily going out of business last year increased by 45 per cent, according to research by construction risk management firm CR Management.

This significantly outstrips the 34 per cent of total businesses which entered into a Creditors Voluntary Liquidation.

The high number of voluntary construction liquidations is against a backdrop where the number of business failures rose by 22.8 per cent to 19,077 in 2009 compared to 2008.

But in the three months to February, the outlook started to improve and the number of failing businesses dropped by 1.7 per cent.

Based on the first three quarters of last year from February to November, the number of construction companies forced into a compulsory arrangement, usually by the bank, increased on the same period for 2008 by 39.3 per cent and made up 64 per cent of all construction insolvencies .

The only ray of hope is that the number of construction industry insolvencies finally started to decrease in the third quarter, declining by 162 from 1,848 to 1,686 companies.

Of the insolvencies 36 per cent are main contractors and civil engineering companies.

CR Management partner Jason Farnell said the main contractors unpaid debts can lead to a whole raft of smaller firms going out business all the way down the supply chain.

He said: “The high number of construction companies going out of business is likely to be of little surprise to anyone.

“Although the economy is now out of recession the tough times for the construction industry are not over and it is likely that the number of construction company insolvencies remain high for most of this year.

“As margins on new work continue to be squeezed and construction companies who have weathered the storm for this long come to the end of their cash reserves, I expect to see not only more insolvencies, but also a rise in the number of disputes later in the year, as companies fight to reclaim as much money as they can to stay afloat.

“Of course the most damaging insolvencies are the larger contractors, as they impact on so many smaller firms and can cause a whole raft of smaller firms to go out of business as a result of the debts they leave behind.”