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Construction industry hardest hit on insolvencies

The construction industry was the UK’s worst affected sector for corporate failures in 2010, business recovery firm PwC has said.

The sector suffered 565 insolvencies during the last quarter compared with manufacturing with 410 and retail with 399. But one chink of light among the gloom was that all sectors improved on the figures recorded in the same quarter a year earlier.

PwC business recovery services partner Mike Jervis said: “The demise of Rok in November 2010 exemplifies that companies within the construction and service industries are still vulnerable. It is telling that overall construction insolvencies during 2010 were still 15 per cent above those experienced in 2008. A modest increase in interest rates would also put additional pressure on many struggling companies.”

He said companies needed to take account of these actual and potential economic challenges in their cashflow forecasts. “Scenario planning should be a key discipline,” he added. “Key risks are loss of demand or increases in uncontrollable costs. Cashflow management needs to be obsessive in companies facing these issues.”

Overall, there was an 18.5 per cent drop in the number of corporate failures in 2010 than in the previous year. Improving economic conditions and a widening range of options available to firms in financial difficulties meant 15,894 companies became insolvent last year compared with 19,512 in 2009.

PwC’s analysis shows that London continues to have the highest number of insolvencies, with 875 across all sectors, but this is a 24 per cent drop on the same quarter of 2009.

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