Peter Vinden is a director at Leonard Curtis
The construction sector has been shaken by the collapse of ISG, but the warning signs were there for all to see, and now lessons need to be learned.
The group’s demise, according to ISG chief executive Zoe Price, can be traced back to loss-making projects secured between 2018 and 2020 in the residential, logistics and distribution sectors.
“The repercussions of ISG’s collapse extend far beyond its boardrooms”
While ISG reported a turnover of £2.2bn and a modest pre-tax profit of £11.5m in its 2022 financials, the cracks in its foundations were already forming. The company’s cash reserves were steadily depleted due to underperforming projects, which ultimately left the business with no viable buyer.
This situation brings into sharp focus some key issues facing the industry, where a combination of long-term fixed-price contracts and rising prices across the board has put many businesses’ finances under intense pressure.
A widespread impact
The repercussions of ISG’s collapse extend far beyond its boardrooms. With creditors reported to be owed £771m, the fallout for the supply chain is significant, with some estimating the final hit to creditors may exceed £1bn. For many subcontractors, suppliers and smaller firms relying on ISG contracts, this is nothing short of a catastrophe.
Construction is an industry built on trust and timely payments. When large firms go under, the ripple effects can turn solvent businesses insolvent almost overnight. Subcontractors, already dealing with tight margins and cashflow issues, are left scrambling to recover bad debts and protect their livelihoods.
The role of directors in insolvency
The collapse has also put a spotlight on the role of company directors in managing financial distress. Directors have a duty to act in the best interests of shareholders. However, once a company becomes insolvent, their duty shifts towards protecting the interests of creditors.
Directors are obligated to act reasonably to preserve the company’s assets and minimise liabilities. Any transactions that unfairly prioritise certain creditors or dispose of assets at undervalued rates can lead to serious repercussions.
For ISG’s directors, the next few months will be crucial. Investigations led by the administrators will examine whether any improper conduct – such as wrongful trading or breach of fiduciary duty – occurred. If evidence of misconduct emerges, directors could face significant consequences, including personal liability or even disqualification.
Navigating the fallout
For affected businesses, the immediate challenge is survival. Subcontractors and suppliers are now facing potential bad debts, which could cripple their financial health. Many firms will be forced to reevaluate their cashflow, adjust their forecasts, and make difficult decisions to stay afloat.
Legally speaking, companies dealing with ISG’s collapse face a complex landscape. Directors of affected businesses need to ensure they are acting prudently to avoid further financial risk. This involves preserving assets, limiting liabilities and seeking professional advice on restructuring options.
Practical steps for business survival
The advice to those affected is clear: don’t ignore the problem. The longer companies delay action, the fewer options they will have, and the greater the risks they will face. Companies should immediately seek advice from their accountants and legal counsel to explore potential solutions such as refinancing, restructuring or sale.
Taking decisive action may save businesses from financial distress. Swift action is especially important in the construction sector, where insolvencies can create a supply chain domino effect.
The ISG story is far from over, and its long-term impact on the construction supply chain will be profound.
But with every crisis comes an opportunity. In this case, it is the impetus to reshape the industry’s approach to risk, financial oversight and project management in order to build a sustainable sector for the years ahead.
