Construction tops debt collection activity
Construction is the sector currently facing the most debt collection actions, according to an industry expert.
Athena Collections managing director Andrew Athineos, who has been working in debt collection for 23 years, said the current economic climate has made construction the most prevalent industry for debt collection, followed by hospitality.
As well as seeing the highest volume of collections, construction is a slightly more complex industry for debt recovery as it does not conform to the usual civil procedure rules.
Read more: Bad debt levels soar by 61pc for UK SMEs
Instead, depending on the type of debt and whether it is subject to a Joint Contracts Tribunal contract, there can be a separate pre-action protocol for construction.
“For instance, sometimes we get instructed on matters where our client has just provided materials to a project,” Athineos told Peer2Peer Finance News.
“That normally isn’t subject to the construction protocol but if our client is, let’s say, a subcontractor to a main builder, then that’s where we come across the construction debts quite often.”
Read more: Relendex unveils funding partnership with Travis Perkins
Athineos’ observations underline the risk profile of some development-backed peer-to-peer lending portfolios, which can see borrowers at risk of default if projects run into these kinds of problems.
“What tends to happen is the main contractor sets up a special purpose vehicle, for a particular project,” Athineos said.
“If that project goes over budget, the main contractor hasn’t got the funds to pay the subcontractors, and then the contractor will potentially shut down the company through voluntary liquidation and all the subcontractors are caught up in it.”
Read more: Property IFISAs: Backing bricks and mortar