A new study has revealed that businesses involved in the development of building projects are the most likely to enter insolvency, with other types of businesses driving high administrations including those buying or selling real estate and road freight firms.
The study from global fintech AptPay analysed Companies House data, referring to the Standard Industrial Classification (SIC) codes that companies in insolvency or administration proceedings were registered under.
The research found that businesses involved in the development of building projects (SIC code 41100) were currently the most likely to collapse, with 183 such businesses in administration or insolvency proceedings.
This was followed by companies involved in the buying and selling of real estate (SIC code 68100), with 147 in administration or insolvency proceedings. The third most common type of business to be in administration or insolvency was other holding companies (64209), with 80.
Companies involved in freight transport by road (49410) and the letting and operating of owned or leased real estate (68209) shared the fourth spot, with each having 75 businesses involved in administration or insolvency proceedings, followed by companies involved in the construction of commercial buildings (41201), with 70 businesses.
The figures demonstrate the heavy impact that rising insolvencies are taking on the construction, property and haulage industries, which have seen some of the highest levels of administrations over recent years, amid headwinds including Brexit, COVID-19, high interest rates, the cost-of-living crisis and rising costs.
Commenting on the findings of the AptPay study, Witan Solicitors Director and insolvency lawyer Qarrar Somji said: “Property development relies heavily on loans and financing to acquire land, construct buildings, and hold onto properties until they sell. This creates a significant debt burden. Similarly, the real estate market is closely tied to the overall economy.”
“When people are struggling, they are less likely to buy houses or commercial properties. This can lead to a surplus of unsold properties, forcing sellers to lower prices or hold onto vacant buildings with ongoing debt.”
Somji added: “In the past year, we have seen a rise in the number of companies facing insolvency due to the increased cost of borrowing and the slowing economy in the UK. It can be challenging for indebted businesses to paper over the cracks and find a way out.”
Insolvencies are likely to continue rising further amid an ongoing increase in financial distress among UK companies
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