The number of construction companies facing “critical problems” between the 2007 and 2008 has increased almost fourfold, according to Begbies Traynor's Red Flag Alert statistics.

Data from the business rescue, recovery and restructuring specialist today reveals that in the second quarter of this year there was a 370 per cent increase in construction companies reporting severe difficulties over the same period last year.

There was also a 13 per cent increase in construction firm reporting similar difficulties between the first and second quarter (Q) of the year.

Begbies Traynor defines a critical problem as a county court judgement in excess of £5,000 or any winding-up petition-related action.

Based on previous research, approximately 15 per cent of the companies experiencing the most difficult of circumstances, categorised by Red Flag as those with ‘Critical Problems’, will enter into a formal insolvency procedure within 12 months.

Begbies data also revealed that the number of UK companies experiencing “critical problems” in the second quarter of 2008 increased substantially over the same period last year.

Overall, 4,258 companies faced critical problems, such as county court judgements in excess of £5,000 or winding-up petition related actions, in the first quarter (Q) of 2008 compared with 542 as in the same period last year.

The research also showed conditions getting more difficult as the year progresses, with an increase in the number of companies facing critical problems of nearly 30 per cent in Q2 2008 compared to Q1 2008.

The Q2 2008 statistics show substantial year on year increases in critical problems across all sectors, but construction and IT (up 371 per cent) showed the largest percentage increases followed by retail (up 335 per cent).

On the positive side, the statistics show a fall in the rate of growth of appointments within the manufacturing, automotive and wholesale sectors in Q2 2008 compared to Q2 2007.

Additional analysis of the trends in the first half of the year show financial services (Q2 up 36 per cent on Q1) and property services (up 20 per cent) as also suffering. Pressure did ease slightly in Q2 2008 in certain sectors, including engineering and automotive industries which, although the overall numbers were higher, the rate of increase had slowed in actions received over the first quarter of the year.

Ric Traynor, executive chairman of the Begbies Traynor Group, said: “In times of economic slowdown, you would expect the construction and retail sectors to suffer – and that is certainly borne out by our research. However, the statistics also show that many other industry sectors are being affected by the current conditions, and the gloom is certainly not restricted to those areas.

“Credit lines have dried up and companies which might have been supported by extended credit up to a year ago are now at real risk.”


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