Nearly half of troubled companys are building firms

mastermind2005

THE property slowdown has taken a disturbing toll on Irish businesses, with four times more companies in examinership today than this time last year.


Almost half the companies in financial difficulty are in the construction sector.

In the first 10 months of this year, 13 companies went into examinership, compared to only three in 2006 and four in 2005, according to Kieran Wallace, of KPMG. Another 30 companies have gone to the High Court to appoint liquidators this year, while about four have gone into receivership.

"More problems are likely in the months ahead with the continuing turmoil in international money markets," said Wallace. Jim Stafford, managing partner of the Dublin liquidator, Friel Stafford, said there had been a "marked increase" in liquidations in the construction sector since September.

"Smaller developers outside Dublin have bought land, are building developments themselves, have no financial cushion and are now under pressure because they can't sell houses," said Stafford. "There's a tremendous oversupply of new properties and there's simply no work for builders. Builders are desperate to sell houses." House prices fell for the eighth month in a row last month.

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gerire

I know of 3 builders who have all walked out of thew trade in the last 4 weeks going to "guaranteed income jobs" before the bottom falls out of the building completely

tHE vAGGABOND

One thing I would wonder about [as somone who has never worked in construction for a single second], is that many [indeed most] builders would form companies for a job [ie: a big example, to build wembley 2 or 3 construction firms formed a limited liability company for that single job. The same would happen at a smaller level with regular builders].

So just because x companies are in trouble does not really necessarily mean the earth, moon and stars [while I'm not doubting for a second that SOME builders who over extended themselves may be in trouble]

Victor

The problem there is the personal guarantees that shareholders / directors will have given to banks.

EnoughSaid

tHE vAGGABOND wrote: »

One thing I would wonder about [as somone who has never worked in construction for a single second], is that many [indeed most] builders would form companies for a job [ie: a big example, to build wembley 2 or 3 construction firms formed a limited liability company for that single job. The same would happen at a smaller level with regular builders].

So just because x companies are in trouble does not really necessarily mean the earth, moon and stars [while I'm not doubting for a second that SOME builders who over extended themselves may be in trouble]

I am not aware of large building companies forming seperate ltd companies for a single job unless it is a joint venture. They would be unlikely to be awarded the contract if they set up a specific company for a particular job because one the the things taken into consideration when awarding big contracts is the track record of the company and the strength of its balance sheet...if a new company was formed just to do the job it would not have a strong balance sheet and it would appear to the client that the building company was trying to circumvent its repsonsibilities by limiting its liability on this one particular contract. For this reason the client will often insist that the contact is with the parent company.

Victor

A lot of generalising there.

EnoughSaid wrote: »

I am not aware of large building companies forming seperate ltd companies for a single job unless it is a joint venture.

It is quite common. For one thing, all apartment or other multi-occupant building / site is likely to be done through a shelf company associated with the management company -if for nothing else that the stamp duty on the sale of company shares is only 1%. Sometimes complicated structures exist in the handling of the liabilities of one entity by another.

They would be unlikely to be awarded the contract if they set up a specific company for a particular job because one the the things taken into consideration when awarding big contracts is the track record of the company and the strength of its balance sheet...

The bigger the job, the more likely a separate company will be used. Guarantees, co-lateral aggreements and bonds can be used to protect the client.

if a new company was formed just to do the job it would not have a strong balance sheet and it would appear to the client that the building company was trying to circumvent its repsonsibilities by limiting its liability on this one particular contract. For this reason the client will often insist that the contact is with the parent company.

EnoughSaid

It may be the case in Ireland, but I have been involved with very large contracts in the UK and in other countries and in these cases new companies have not been set up for specific projects. The only cases where I came accross new companies being formed was where there was a joint venture or where the contract was in a new country where the company had not traded before. In both of these cases, parent company guarantees were required.