If your building firm goes bust: reducing the insolvency risk on a London project, and what to do if it happens

When a London homeowner hires a construction company to manage a refurbishment, an extension or a new building, they are relying on that firm's finances as much as its skills. The main contractor buys materials, pays subcontractors and carries the job's cash flow. If the firm fails, work stops, subcontractors leave site, materials may be removed and the homeowner is left with a half-built project and, often, money paid for work not yet done.

This guide looks at that particular risk: how common it is, how to spot financial warning signs before you sign, how to structure the contract and payments so that a failure costs you less, and what to do if your contractor goes under. Sources were checked on 21 October 2026.

Why this risk is real

The Insolvency Service's company insolvency statistics for September 2026, published on 20 October 2026, show that construction had 3,873 company insolvencies in England and Wales in the 12 months to September 2026 - 17% of cases where the industry was captured, the highest of any sector. That was a 2% fall on the previous year, but construction has remained at the top of the table. Across all sectors there were 1,882 registered company insolvencies in September 2026 alone.

These figures cover every kind of construction business, from national contractors to one-person specialist subcontractors, so they do not tell you the odds for any particular firm. They do tell you that a contractor's financial health deserves the same scrutiny as its portfolio.

Reading the warning signs before you sign

Much of what you need is free on the public record.

Companies House

Search the firm on Companies House and check:

• That the name matches. The company on your quote, contract, insurance certificate and bank details should be the same legal entity. Many firms trade under a brand name; insist on the registered company name and number.
• Accounts filed on time. GOV.UK's guidance on filing accounts gives private companies 9 months from the end of their accounting period (first accounts are treated differently). Accounts marked "overdue", or a pattern of late filing, is a warning sign; late filing also attracts automatic penalties of up to £1,500 for a private company.
• Strike-off notices in the filing history, which can follow overdue filings.
• Charges - registered security such as debentures in favour of lenders or invoice finance providers. Not necessarily bad, but a recent charge in favour of a specialist lender can indicate pressure on cash.
• The directors' other appointments. Click through to each director. A string of dissolved or liquidated construction companies, especially with similar names, is a serious red flag.
• Incorporation date. A firm claiming "25 years' experience" whose company was formed last year may have a perfectly innocent explanation - ask for it.

The Gazette

Search The Gazette's insolvency notices for the company and its directors. Winding-up petitions are advertised there, and a petition against your prospective contractor is about as clear a warning as you will get.

Behaviour on the ground

Some signs only appear once you are talking: a contractor who needs a large deposit to "secure materials" for a job months away, who asks for payments to a different account or company, who offers a discount for cash, or whose suppliers and subcontractors you later hear are chasing payment.

Structuring payments so a failure costs less

The single most effective protection is not to be owed much at any point. If you have paid only for work that is done, a contractor's collapse is disruptive and expensive, but you have not lost money for nothing.

• Keep any deposit modest and specific. If a deposit is genuinely needed - for example for bespoke windows or a steel frame - tie it to that item, ask for the supplier's order confirmation and, where possible, have goods delivered to site promptly.
• Pay in arrears against completed stages that you or your surveyor can verify: foundations, superstructure, roof on, first fix, and so on. Avoid schedules that front-load payments.
• Hold a retention. Which? Trusted Traders' guide to hiring builders (last updated July 2018) quotes the Federation of Master Builders as saying it is reasonable "to retain 2.5% of the contract value for a three to six-month snagging period". Agree the figure in the contract, not afterwards.
• Use a credit card for at least part of the price where the contractor accepts it. Citizens Advice explains that Section 75 can make the card provider jointly liable where the price of the item or service was over £100 and not more than £30,000, even if only part was paid by card. Many building contracts exceed £30,000 in total, so take advice on how the contract is framed.
• Look for real financial protection. TrustMark says its registered businesses are expected to provide protection covering prepayments such as deposits, at least two years of workmanship cover after completion, and rectification of defects or Building Regulations non-compliance, so that the homeowner is covered if the business ceases trading. Ask exactly what is offered, who the insurer is, and get the policy wording before you pay.

Contract terms worth insisting on

A written contract will not stop a firm failing, but it decides what happens next. Ask your surveyor or solicitor to check that the contract:

• names the correct legal entity and its company number;
• lets you terminate if the contractor becomes insolvent, and to bring in another firm to finish;
• sets out who owns materials once paid for or delivered to site - bearing in mind that suppliers' own terms may retain ownership until they are paid;
• requires the contractor to hold and evidence public liability and contract works insurance;
• specifies the stage payments, the retention and how variations are priced;
• requires the warranties, guarantees and Building Regulations certificates to be handed over at completion.

Protecting your position during the job

• Keep a dated photographic record of progress at every payment stage.
• Keep copies of all drawings, specifications, structural calculations and building control correspondence yourself - not just on the contractor's system.
• Note who is actually on site. If familiar subcontractors stop appearing, ask why.
• If payments to subcontractors or suppliers appear to be slipping, raise it in writing early. Do not be persuaded to pay ahead of the schedule to "help with cash flow"; that is how homeowners end up as the largest creditor.

If your contractor goes bust

1. Secure the site. Make sure scaffolding, excavations and any open roof are safe and weather-protected. Tell your home insurer that the contractor has stopped work, as cover can be affected by an unoccupied or unfinished property.
2. Confirm the insolvency and who is handling it. GOV.UK's guidance for creditors explains you can check Companies House or The Gazette to find the official receiver or insolvency practitioner. The Insolvency Service helpline is 0300 678 0015.
3. Register as a creditor. According to GOV.UK, if you are owed more than £1,000 you will need to submit a proof of debt; for £1,000 or less you give the officeholder your details and the amount. Registration does not guarantee payment.
4. Understand where you stand. The same guidance sets out the order of payment: the costs of the insolvency, then preferential creditors such as employees' wages, then floating charge holders, and only then unsecured creditors - which is where most homeowners sit. Recoveries are frequently small.
5. Claim on any protection you arranged. Contact the insurance-backed guarantee or deposit protection provider immediately; policies usually have notification deadlines. If you paid by card, write to the card provider about a Section 75 or chargeback claim.
6. Talk to the liquidator before removing or using materials on site. If you believe goods on site belong to you, tell the liquidator with evidence of payment. Suppliers may claim goods under retention of title.
7. Get an independent survey before re-tendering. A new contractor will want to know what has been built, to what standard, and what building control has inspected. Expect them to price the risk of taking over someone else's work.

The balance to strike

Asking a contractor about their accounts, their insurer and their payment terms is not an insult; good firms expect it. A contractor who is financially sound will be comfortable with stage payments in arrears, a modest deposit linked to specific orders, and a retention. One who is not will tend to resist exactly those things - and that resistance is itself worth noticing.

Sources (checked 21 October 2026): Insolvency Service, Company Insolvency Statistics September 2026; Companies House, Life of a company: accounts; GOV.UK, Penalties for late filing; The Gazette, insolvency notices; Which? Trusted Traders, How to hire guide: builders; Citizens Advice, Getting your money back if you paid by card; TrustMark, Financial protection; GOV.UK, Register as a creditor; Insolvency Service, Guidance for creditors. Nothing here is legal or financial advice.