How Red Flag Alert Detected The Stephens And Stephens Developers Collapse Ten Months Early

On 14^th March 2024 the £12.3 million turnover Stephens and Stephens Limited Developers Ltd became the latest high turnover construction company to collapse into insolvency. It represents further misery for a sector that has been hit hardest by the macroeconomic challenges of the last three years and adds to the worryingly high amount of bad debt snowballing through the construction industry.

Who were Stephens And Stephens Developers ltd?

Stephens and Stephens Developers Ltd were a successful luxury property developer based in Cornwall. The developers services included inhouse architects, property development and interior design. They delivered high end Cornish lifestyle and design properties in some of the county’s most desirable locations.

Projects ranged from large apartment complexes through to residential homes, with the interior design division offering refurbishment services.

What pressures did they face?

Stephens and Stephens have faced the onslaught of challenges that have plagued the UK economy, and especially UK construction, since the onset of COVID; as well as historic issues that have continued to trouble their industry.

These are:

• Low profit margins – For years the construction industry has operated on extremely thin profit margins. In a large part this is due to a culture of underbidding to win projects at all costs. This means that often projects are barely profitable before ground is even broken and can quickly become loss making if there are delays or unforeseen costs. It also means that without a constant stream of projects construction companies can quickly become insolvent.
• Supply chain delays and materials shortages - In an industry so reliant on projects running smoothly these have had a devastating effect. COVID caused the near total collapse of the global supply chain and it is still yet to fully recover, leading to unpredictable delays. These delays as well as periodic global production issues mean that certain materials can quickly become scarce. Both of these factors can cause long delays to projects. The industries supply issues did not only start at COVID but have been an issue since Brexit, when cross border trade wit Europe became much more difficult and expensive.
• Labour shortages – There is an acute shortage in skilled construction workers, one that is only expected to get worse as more of the skilled workforce reach retirement. Not only does this lead to delays as project have to wait for available trades but has also dramatically increases the cost of such skills.
• Inflation – Inflation has raised costs across the board, which were already significantly higher than their 2019 levels. With many contracts being agreed long in advance, this has seriously hurt profitability as well as devaluing company cash reserves.
• Rising costs, especially energy – Even with inflation prices have rise significantly across the board. The huge spike in energy costs seen after the invasion of Ukraine had a particular effect on the construction industry and made continued operation untenable for many businesses. Whilst prices have lowered, most business energy bills have had effectively no government relief from April 2023 as compared to domestic bills.
• Interest rate rises – The increased cost of borrowing has had a twofold effect on the construction industry. The first being making lending less accessible to construction firms themselves and the second being significantly lowering the demand for building projects, which are usually done on some form of credit.

How did Red Flag Alert warn our customers?

We warned our customers of serious financial trouble at Stephens and Stephens as early as 12^th May 2023 when a winding up petition was taken out against the company. Whilst this did not result in a winding up order, we continued to rate them as a severe credit risk that should not be offered credit.

Just five months later, a second winding up petition was submitted to the courts speaking of continued difficulties in meeting their debt commitments. When this petition was submitted we rated them to a critical credit risk, advising that not only should no credit be extended but that they would likely soon be insolvent.

Between December 2023 and February 2024, Stephens and Stephens received three county court judgements until a final winding up petition was submitted to the courts on 7^th February 2024. This time there was no avoiding the inevitable and a winding up order was granted on 13^th March 2024, effectively signalling the end of the company.

This insolvency leaves any unsecured creditors of Stephens and Stephens extremely unlikely to recover any meaningful portion of their debts, this is especially true as involuntary insolvencies tend to mean there is less to be recovered via liquidation, putting them in the difficult position of having to absorb the bad debt without going insolvent themselves. This can be extremely difficult to do and statistics show that companies that receive a bad debt are three time more likely to fail in the following twelve months than ones which have not.

As insolvency rates rise and the economy continues to stutter it is extremely important that companies minimise the levels of risk that they face by practicing excellent credit risk processes.

Red Flag Alert is your perfect defence against bad debt. We are the industry leaders in analysing company financial health and predicting insolvency, which we do with an accuracy of 92%. Not only are we the most accurate business risk data platform, we are also specifically designed to be easily understandable regardless of if you have specialist credit and risk training or not.

We think the competitive advantages provided by data should be accessible to all businesses, regardless of if they can afford specialist risk teams. We have designed our platform to demystify data whilst still providing the best insights on the market.

With easy to understand but detailed business reports on all UK companies, clear business health ratings, inbuilt analysis tools, customisable monitoring and the most up to date data available Red Flag Alert makes protecting your business easy.

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