It’s a nightmare scenario but its always best to be prepared for the worst

When you are planning an extension, make sure to think about what would happen if your builder went bust before the job is finished - and if you would be protected.

It’s more frequent than you might think. Despite demand for building services reaching record levels, hundreds of UK construction companies are going out of business amid rising material prices, a shrinking pool of skilled labour and supply chain problems. Latest Insolvency Service figures show an average of 266 businesses per month collapsed between August and October 2021 – up 29% on the previous period.

Choose your builder with care

Of course, you can’t stop a company going under, but you can try to spot early red flags. Be aware anyone can call themselves a builder without any registration to check if they are competent.  In November 2021, a private member’s bill proposed to create a compulsory licence scheme for construction companies that would help protect consumers and ensure trustworthy builders are not undercut by cowboy builders. But the bill wasn’t backed by Government – a failure condemned by the Federation of Master Builders.

Be wary of companies who are a lot cheaper than the competition. Research how long they have been in business, turnover and how many projects they are currently working on to make sure they aren’t overstretched and their resources spread too thinly. Avoid builders who ask for large sums of money upfront as this suggests underlying cash flow problems. Set up your contract documents to pay for work in stages after it has been done. Paying for work in arrears means that if the worst happens you should still have money left in your budget to complete the job.

Try to contact the builder or construction firm

If your builder doesn’t turn up for days and isn’t answering their phone, this may suggest problems. Or they may simply have gone on holiday without telling you.  Keep trying to contact the builder. It’s best to email or write too – and keep a copy of anything you send in case you need to check it later. If you can’t contact them or they won’t help, check if the trader is a member of a professional trade association, like the Association of Master Builders with a complaints procedure and formal mediation to help resolve problems.

Check the insurance position, too. It’s worth asking if a builder has an insurance backed guarantee before hiring them. It may be more expensive but will give peace of mind knowing that the cost of finishing the project is covered if the worst happens.

Confirm the company has gone out of business

Urgently check your contractual position - who was your contract with and is that the firm that has gone out of business?  If you can’t get hold of the firm, search for their name on the Companies House website if they are a limited company with the letters Ltd or Plc after their name. If your builder is a sole trader or a partnership, search for their name on the Insolvency Register.  All searches are free of charge. To do a search on the register you will need the individual’s name or trading name. Be aware it can take a few weeks for information to appear on these websites, according to the Citizens Advice Bureau (CAB).

Assuming your builder has gone out of business, get the name and address of any appointed insolvency practitioner and the official receiver who is settling the trader’s debts. These details can also be found on the Insolvency Register along with the bankrupt’s name (including any other names), their last known address and bankruptcy order.

When a bankruptcy order is made, it automatically becomes a matter of public record. Details must also be published in the Official Public Record, The Gazette, though no longer in the local press.

Secure the site

Visit the building site and make sure it’s secure. Change any locks and codes. There may be a row over who owns any unused materials and the supplier or builder may try to repossess them. Don’t let them until the legal position is clear. Meanwhile contact any trades or builders who were due to be next on site and tell them what has happened, so they don’t turn up with a lorry load of cement when the foundations haven’t yet been dug, for example. It’s best to be open and honest with the supply chain.  

Make sure you have all the paperwork that accompanies your project, such as installation drawings for wiring, test and completion certificates. This will show if the work already completed is up to standard and will be useful in future.

How to claim your money back

If you have paid in staged payments and only for the works that have been finished, you can breathe a big sigh of relief. But if you have paid upfront for work that hasn’t been completed or don’t believe it is worth the money paid, then the bad news is that you may be at the bottom of a list of people who might get paid out of any money which the liquidator manages to obtain to pay the builder’s creditors. Contact the appointed official receiver or the insolvency practitioner to claim money back. If you are owed more than £1,000, you will be asked to submit a proof of debt form to appointed insolvency practitioner https://www.gov.uk/government/publications/rule-144-proof-of-debt-general-form

The insolvency practitioner will then let you know whether you are likely to see any of your money again. Other people, including banks, will get paid first, so you might get nothing.

Did you pay a deposit by credit card?

If you paid the builder between £100 and £30,000 by credit card, then you can ask the finance company for your money back using Section 75 of the Consumer Credit Act 1974. You need to contact your card provider directly and tell them you want to make a Section 75 claim. You can ask for the full deposit paid or the cost of repairing faulty work or for a trader misleading you, according to the CAB.

If you can find a builder who will take a credit card rather than direct bank transfer or cash, it’s worth considering for the extra protection it can give against the risk of their business failing or shoddy work. Expect to pay a bit more if the builder accepts credit cards. This is because the builder needs to pay the credit-card company and passes on the fee to customers.

Builders’ merchants, kitchen and bathroom suppliers and double-glazing companies typically take credit cards. Consider paying for some building materials and big-ticket items yourself by credit card, so it doesn’t go through the builder’s book. Then if the builder goes bust, you have some protection and should still be able to take delivery of the items rather than the builder or the insolvency practitioner.

Small claims court

Another possible option is to apply to a county court to claim any money you’re owed by the builder up to about £10,000.  Small claims are for simple cases that don’t involve large amounts of money or complicated cases. When a limited company stops trading, you can’t go to court, warns the CAB. If the building firm has been bought by another company, it’s worth explaining what happened to the new owners.

Find another builder

Don’t panic and go with the first builder you can find after the insolvency. Ask three trustworthy builders to price up for the remaining works and estimate the value of work done. This independent information will help when you go after your bankrupt builder as a creditor as well as to assess what stills needs to be done.  Plus, you could use one of the builders to finish the job.  It’s essential to first check if you need to terminate the original contract– the fact a trader is insolvent may not automatically end your contract. If you hire another firm without first making sure your contract has ended it could be breach of contract.

Finally, if your builder goes bust, it’s always a good idea to seek advice from your local Citizens Advice Bureau and take with you any contracts, written quotations and stage payment contracts.