Is your building firm heading towards insolvency? Warning signs and what to do

Construction has accounted for 17% of all company insolvencies in England and Wales for four consecutive years, which is more than any other sector. Rising inflation, trade tariffs and economic uncertainty continue to put financial pressure on building companies, pushing them towards insolvency, and making it more important than ever to recognise the early warning signs.

What day-to-day financial difficulty looks like

Operating on thin margins, with little room to absorb unexpected costs, a job can quickly become loss-making if it overruns or the project becomes delayed. Losses can be considerable if a fixed price has already been agreed and materials subsequently increase in price. Combined with supply chain and retention risk, building businesses are under growing financial pressure. According to Red Flag Alert (RFA) statistics for Q1 2026, construction ranked as the top sector in critical financial distress, with 9,466 businesses in this category, followed by support services.

Signs your building company could be approaching insolvency

Construction businesses are highly dependent on supply chains, so in the event of supply chain insolvency, the business may be exposed to significant bad debt risk. If the business is operating invoice-to-invoice, this may fuel deeper financial problems that can tip a builder into insolvency.

In our experience, most building companies see financial health deteriorate gradually, rather than all at once. Through my conversations with directors, trends that indicate that a builder is approaching insolvency include:

• Using the deposit from a new contract to cover materials or pay subcontractors for a previous job, as jobs are no longer self-funding
• Delaying payments to subcontractors or making partial payments and deferring the rest as cash is limited
• Falling behind on HMRC obligations, such as VAT quarters, CIS deductions, and PAYE, as cash is tied up elsewhere
• Director’s loan account growing due to injecting personal funds to keep the business moving
• Taking on new work primarily to plug a cash flow gap, rather than for other commercial reasons

While none of these individually signal the end, a combination may signal that your building company is likely insolvent or approaching insolvency. As a director, you must act in the best interests of creditors – this is your legal duty. In practice, this means seeking professional insolvency advice and acting with reasonable care when handling company debts. If your building company is already insolvent, you must stop relying on subcontractors you can’t pay, pause taking deposits, and halt trading. If you continue trading when your company can’t meet its obligations, there are serious consequences, including the risk of being personally liable for the company’s debts.

As an experienced licensed Insolvency Practitioner with over 20 years in the field, if there’s one piece of advice worth sharing, it’s the importance of seeking early advice. The stage before insolvency is when the greatest number of options remain open.

Options if your building company is approaching insolvency

If you are on amicable terms with creditors, negotiating a payment extension or an informal payment plan may be problem-free. If your relationships are strained due to persistent creditor pressure, a formal route may be better suited.

At the heart of a successful building project lies supplier and trade relationships built on trust. Diffusing tensions by addressing outstanding debt early protects supply chains and maintains access to high quality, and reliably sourced materials, equipment, and services.

The pre-insolvency options available include:

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is a legally binding payment plan where debts are paid in instalments, typically over three to five years. A CVA requires approval from creditors holding 75% of the debt (by value). It runs in the background while the business continues trading, which is particularly useful for builders with ongoing contracts and future projects lined up.

Time to Pay arrangement (TTP)

If you owe HMRC, a Time to Pay arrangement is a payment plan entered into with HMRC where tax debts are repaid over an agreed term, typically 6 to 12 months. For a TTP to be successfully negotiated, the business must be able to demonstrate that the proposed repayments are affordable.

A TTP can reduce pressure on company finances, particularly useful for builders operating a viable business, weighed down by a backlog of taxes.

Business finance

Company finance is best for businesses that require a helping hand to get back on track. Business finance can plug the gap while retentions are held, unlock cash from invoices yet to be paid, or provide funds to invest in equipment/machinery necessary to complete a job.

There are many types of highly tailored business finance suitable for builders, including:

• Asset finance/hire purchase – this provides an affordable route to purchasing specialist machinery and equipment, such as for earthmoving, lifting, transporting, and civil engineering, which may be the difference between accepting or declining a high-value job.
• Invoice finance – to plug the gap between invoices issued and invoices paid, critical for businesses with a consistent stream of contracts, yet limited working capital to cover materials, plant hire, and subcontractor pay. With payment terms sometimes hitting the 90-day mark, invoice finance can alleviate the pressure on working capital.
• Tax loans – To clear a build-up of HMRC debts in one go, protecting your relationship with HMRC and maintaining a healthy credit history. This route is often supported by a long-term plan for managing HMRC taxes, while a Time to Pay arrangement provides short-term breathing room.  

Here’s a comparison of a tax loan vs a Time to Pay arrangement.

The don’ts for distressed building directors

If your building company is approaching insolvency, you must not engage in a range of activities and actions, such as:

• Continue taking on new contracts and accepting deposits while unable to meet existing obligations – also known as wrongful trading, for which the consequences are severe
• Underestimate HMRC’s debt recovery threats – HMRC pressure gradually escalates, and note their extensive enforcement powers
• Continue drawing salary, dividends, or director’s loans – if the company is insolvent, this is at the expense of creditors, which goes against your duties as a director.
• Pay connected creditors ahead of others – the legal order of payment priority must be followed, as set out by the Insolvency Act
• Delay professional help and wait for the situation to resolve – as financial health can deteriorate further, accumulating greater losses

If in doubt, speak to a licensed Insolvency Practitioner for expert advice on navigating financial difficulty to avoid becoming insolvent, the signs of insolvency to watch out for, and what formal insolvency looks like.

Authors

Louise Longley

Partner, BTG Begbies Traynor

Louise Longley is a licensed Insolvency Practitioner at BTG Begbies Traynor with over 20 years’ insolvency and restructuring experience. She is a construction insolvency specialist with unique expertise managing complex building insolvencies and navigating pressures unique to the sector, from trade creditor disputes, CIS tax arrears, to loss of retentions.