Cosmur Construction has gone into liquidation, marking a significant setback for the construction industry.
- The company faced dire cashflow challenges when a major client withheld payment, leading to financial instability.
- Despite entering a Company Voluntary Arrangement (CVA) in 2023, Cosmur could not meet the payment terms and breached the agreement.
- Creditors are expected to lose £11 million, with no payouts expected due to HMRC’s priority claims.
- The company’s inability to adjust fixed-price contracts amidst an inflationary environment exacerbated its financial troubles.
Cosmur Construction, a contractor based in London’s Queen’s Park, has officially entered liquidation after a failed rescue plan, underscoring severe financial strains within the sector. The company, which celebrated its 50th anniversary recently, was unable to sustain operations following notable cashflow difficulties.
These difficulties were primarily triggered towards the end of 2022 when a major client chose to withhold payment. This step aggravated the liquidity challenges that the company was already experiencing due to project delays and soaring inflation. The withheld payment was a critical factor that propelled Cosmur into a precarious financial position.
In May 2023, Cosmur sought relief through a Company Voluntary Arrangement (CVA), a measure that allows struggling businesses to repay debts over an extended period by remaining operational. However, in July, RSM, the CVA overseer, reported a breach in the agreement terms after Cosmur failed to make a stipulated monthly payment. Consequently, the company’s directors recognised the grim financial outlook during a board meeting on 3 September and resolved to opt for voluntary liquidation.
Initially, an assessment by liquidators Deviesh Raikundalia and Tyrone Courtman identified approximately 480 creditors, primarily trade creditors, owed about £8.3 million. Additional claims surfaced, bringing total liabilities to £11 million. However, creditors, except for HMRC, are expected to receive no recovery from the liquidation.
In Cosmur’s last reported accounts for the period ending 31 July 2022, the company recorded a £904,000 pre-tax loss on a turnover of £33 million. Directors noted that while the financial year concluded on a stable note, subsequent months saw conditions deteriorate further due to inflation impacts on fixed-price contracts.
The projects, won between 2019 and 2020, faced delays leading into 2022 and 2023, rendering Cosmur susceptible to rampant inflation. The company’s strategy of securing fixed-price contracts while engaging subcontractors on variable terms compounded financial pressures. Although some renegotiations with clients took place, not all were amenable to addressing increased costs.
Ultimately, Cosmur’s fiscal challenges were worsened by the declining value of its investment property, a consequence of ‘world events and government actions’ during 2022 and 2023. These factors collectively precipitated the company’s liquidation, marking a notable collapse in the construction domain.
Cosmur Construction’s liquidation serves as a stark reminder of the vulnerabilities in managing cashflow and contract terms in volatile markets.
