Monthly administrations hit three-and-a-half year low

Fewer construction firms entered administration in January than in any month in three-and-a-half years, according to the latest data from Creditsafe.

Only 10 firms went under in the first month of 2025. The monthly toll has not dropped so low since June 2021, when seven companies went bust. At the time, Covid support such as the furlough scheme and a moratorium on winding-up petitions was helping keep struggling businesses afloat.

January’s low figure comes after a similarly mellow December, when 15 firms went into administration.

In all, more than 80 fewer businesses went under in 2024 than in 2023, when an average of 30 firms entered administration each month.

All of the companies that collapsed in January were too small to have to file full turnover and profit figures.

The first company of the year to call in administrators was Connect Modular. The Ayrshire-based modular housebuilder was the latest in a string of modular failures over the past few years, including TopHat, Ilke Homes, and Caledonian Modular.

Connect Modular built its homes in its own Cumnock-based manufacturing facility. It often worked for housing associations and local authorities, including completing an 101-home affordable housing scheme in Kilmarnock for Cunninghame Housing Association in July 2024.

FRP Advisory partners Michelle Elliot and Callum Carmichael were appointed as the firm’s joint administrators on 6 January. A day later, they were called in as provisional liquidators to related company Hope South West Ltd.

All 38 of Connect Modular’s employees, along with Hope South West’s 10 staff members, were made redundant.

Elliot said the business had faced “significant cashflow pressure” after losses on historic contracts.

“Despite the best efforts of the director in exploring alternatives in recent weeks, the cash position deteriorated significantly, placing unsustainable pressure on the business,” he said.

Long Eaton Scaffolding Ltd, based in Long Eaton, south-west of Nottingham, entered administration after nine months in a company voluntary arrangement. The firm’s creditors approved the legally-binding agreement in April, which, if successful, would have allowed the company to pay off some of its debts over a longer period while continuing to trade.

At the time, the company owed nearly £500,000 to its creditors, including £100,000 to HMRC.

A northern Irish fit-out firm nearly appeared in this month’s figures, but was saved at the last minute by private capital.

Newtownabbey-based Pure Fitout, which worked on the luxury Claridge’s hotel in London, called in administrators early in January, citing “substantial unpaid invoices”.

However, on 17 January it announced that the owner of Dublin-based Tetrarch Capital had bought the firm out of administration, saving 100 jobs.

Tetrarch Capital owner Damien Gaffney said he aimed to “stabilise and revitalise the business by working closely with the management team”.

“With a well-capitalised balance sheet and a sound, sustainable business strategy, I am confident in my ability to oversee Pure Fitout, ensuring it continues to deliver exceptional projects throughout the UK and Ireland,” he added.

Outlook

Chris Davies, founding director at DRS Bond Management, said that easing insolvency rates have been reflected in the bond market.

“The [bond] market in January and into February has been relatively stable – certainly more so than it has been in the past couple of years – and I’m cautiously optimistic for the rest of the year,” he said.

Davies said that, despite major insolvencies like ISG and Readie, sureties may soon recover from recent lows. “I think there is a reasonable case for some optimism and 2025 is going to be better. There will inevitably be some administrations, but not on the scale of what we saw in 2024 and 2023,” he said.

“There is a note of caution – I would say I’m not fully bullish, but I’m not bearish either,” he added.

Others have warned that the number of administrations is unlikely to stay low for long. Insolvency practitioner Begbies Traynor reported last week that 6,830 construction firms in the UK ended 2024 in “critical financial distress”, while the Insolvency Service last month reported that the construction industry had the second highest number of insolvencies out of any sector.

Commenting on the Insolvency Service data, Evelyn Partners partner Mark Supperstone said that despite an easing in the number of insolvencies, he expected that “much of the volatility seen last year will likely continue”.

“The outlook for the construction sector for 2025 remains opaque, with some grounds for optimism, but persistent issues might delay any emergence of green shoots for a good part of the year,” he added.

Kelly Boorman, national head of construction at RSM UK, warned at the same time that construction businesses were still dealing with costly legacy contracts hitting cashflow.

She said: “While it appears things are stabilising, these cost pressures plus a lack of visibility across the supply chain will cause challenges for main contractors, so we expect to see consolidation throughout the supply chain moving into 2025.”

Boorman added that stronger pipelines and ongoing funding issues could put construction firms in an “overtrading trap”, adding that labour costs were being driven up by workforce shortages, higher volumes of work and the increases to employers’ National Insurance contributions announced in last October’s Budget.