A NUMBER of small contractors could be at risk after Bathgate-based construction firm Dunne Group entered administration last week with the loss of more than 500 jobs.
Donald McNaught, head of restructuring at accountants Johnston Carmichael, said there could be a knock-on impact on the rest of the supply chain as creditors chase payments from administrator FRP Advisory.
“We would certainly expect that when a large contractor like that fails, there is a knock-on, domino effect with smaller contractors,” he said.
“There’s probably more exposure in a stressed situation than there normally would be. Post-administration those contractors are generally bottom of the food chain behind employees and secured creditors such as banks.”
He added that for any microbusiness whose only current work is with Dunne, it could be a fatal blow. “They’ll have to wait and see what the administrators say. Even best case scenario, payment could be months, if not years, down the line,” he said.
Dunne worked on projects such as the Queen Elizabeth University Hospital in Glasgow and a number of high-profile builds in London, and Mr McNaught said the focus for FRP must be the smooth transition of current contracts.
“The size of contracts Dunne was doing, if they stop trading and contractors down tools, the recovery prospects are slim to nothing because there will be all sorts of claims for damages, looking for alternative contracts.”
Tom MacLennan, partner at FRP Advisory and joint administrator said last week that Dunne faced substantial trading losses on some contracts, leading to severe cash flow pressures.
An insider at Dunne, who said its bank, Santander, had withdrawn the company’s overdraft facilities without warning.
The source suggested the bank’s decision was a “knee-jerk” reaction to Brexit.
“Brexit will have caused concerns with anyone investing in UK property, or in that sector generally,” said Mr McNaught. However he added: “I don’t think Brexit in isolation would have resulted in the company going into administration. That to me seems extremely unlikely.”
Mr McNaught said it was too early to tell if Brexit would tighten up the approach to lending from banks, but warned that businesses must now contend with an additional short-term risk while politicians seek to resolve Britain’s exit from the single market.
“[Banks will] be waiting to hear from the government on the timings of Brexit, but it will cause some nervousness in the lending community,” he said.
“Potentially, there could be a short term increase [in insolvencies] due to uncertainty, but if measures can be put in place quickly to address those uncertainties it will not get any bigger. If it leads to more uncertainty, then it will result in more failures, but it’s too early to go beyond that interim step.”
He said business owners had to treat Brexit as they would any other impediment to success. And to take early advice if circumstances change for the worse. “Most businesses fail because of poor management. There are external factors that influence that but management should anticipate and react to these things.”
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