Soaring energy prices could tip indebted SMEs over the edge, advisor warns

The number of construction companies going bust rose in July for the first time in three months as the effect of soaring energy costs began to bite.

Latest figures from the Insolvency Service showed 347 firms in the sector went to the wall in the second month of summer, up from the 313 recorded in June.


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Plumbers and electrical installation firms were among the hardest hit in July

The figure was nearly double the 179 that went under in July 2021, though still lower than the peak of March 2022, when 419 companies went bankrupt as covid loan repayments kicked in.

Electrical and plumbing installation companies experienced a particularly poor July, with insolvencies in this area rising by 38%.

Glyn Mummery, a partner at restructuring advisors FRP, said construction firms were operating in “challenging, uncertain conditions”, with energy prices, general inflation and supply chain issues all causing problems.

He said there was “concern that property prices may only be protected by a lack of supply” and that “further interest rate rises could dampen the residential property market”.

Mummery added: “For management teams, the added uncertainty of not knowing exactly when the government will help with energy costs makes cash management very difficult.

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“For firms already struggling with debt incurred during and post-pandemic, this will cause problems – and could tip the most financially vulnerable into insolvency.”

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He said that, while insolvency rates were “not yet spiking”, there had been a particular increase in “creditors’ voluntary liquidations”, which normally affect smaller companies.

By contrast, he said, administration appointments – which are usually used to manage larger restructures – remain low compared with 2019.

Mummery added: “Given everything, the construction sector is likely to see an increase in insolvency activity as those businesses who are more financially vulnerable fall foul of rising energy costs, interest rate increases, wage demands and inflation.

“More business failures will also have a knock-on effect on the supply chain – causing problems in supply chains, as well as prompting a wave of bad debts.”