ISG Construction - Case Update

In their proposals approved late last year, Timothy Vance, Alan Hudson and Dan Edkins of EY, the joint administrators of ISG Construction et al., have revealed what led to the downfall of the construction giant, as well as their plans for maximising recoveries through potential litigation.

The companies are part of the larger ISG Group, an international construction services group operating in the UK, Europe, Asia and the Middle East. The UK entities within the Group (the UK Group) operated out of a head office in London and other significant offices located in Ipswich, Bradford, Bristol, Reading, Whitstable, Manchester, Glasgow, Cardiff and Birmingham.

The ISG Group was one of the largest construction contractors in Europe with annual global revenues in excess of £2 billion. The Group was also a significant provider of construction-related services to the UK Government and the Ministry of Justice, largely in relation to the construction of prisons. The companies employed 2,380 people across the UK.

Following a period of steady growth, the ISG Group experienced financial difficulties during and after the Covid-19 pandemic. These were exacerbated by legacy issues relating to loss-making contracts in high-rise residential projects where significant additional time and higher costs were required to deliver projects. Increased inflation adversely affected the larger construction industry, causing many main contractors to fail and limiting the availability of surety bonds.

One anticipated large project failed to proceed and one was paused, negatively impacting the ISG Group’s cashflow and profitability. In late 2023 / early 2024, the Group entered into a Time to Pay Arrangement with HMRC in relation to £60 million in VAT owing.

A marketing of the UK Fit Out division was undertaken, resulting in a proposed solvent sale to an overseas buyer which unfortunately did not materialise. A further accelerated marketing process was conducted, but no going concern sale was able to be achieved within the required timeframe. Cathexis UK Holding Ltd, the company’s parent, also advised that there was no prospect of its own refinancing process providing further funding to the ISG Group. As a result, the decision was taken to place the companies into administration.

The joint administrators determined it wouldn’t be possible to trade the companies in administration due to the lack of funding. They also pointed out that extensive sales processes had already been undertaken, meaning that continuing to trade would likely not result in a going concern sale in any event. Accordingly, the companies ceased to trade on 20 September 2024, sadly resulting in the immediate redundancy of 2,164 employees, while 216 employees were initially retained to assist the joint administrators.

There were approximately 100 live construction sites and approximately 500 live fit out and retail sites being worked on. All relevant sites have since been closed down in a safe and secure manner and have been handed back to the relevant customers. All office sites, except one in Ipswich which houses the ISG Group’s IT servers, have been vacated to reduce costs.

The joint administrators have also been pursuing outstanding balances and seeking to negotiate early settlements where possible. At the time of writing the report, they were lining up litigation funding and after-the-event (ATE) insurance to allow them to pursue claims rigorously. They intend to pursue a “portfolio of claims” which existed prior to their appointment, as well as claims which have arisen post-appointment relating to contractual amounts owing to the ISG Group which are being wrongfully withheld due to the Group’s insolvency.

Much of the work remaining to be completed in the administration relates to realising value from the company’s contracts, through continued settlements with counterparties with support from advisers Naismiths and Pinsent Masons; the selection of a litigation funder and ATE policy provider; and finalising consulting agreements with key ISG Group employees to support the pursuit of claims through litigation if required.

Read the administrators’ proposals here.

Meanwhile, various projects have been able to recommence after new contractors were chosen to complete the projects. These include Project Apple, a new Windlesham, Surrey headquarters for pharma company UCB (which is being taken over by London contractor Walter Lilly), and a couple of sports and leisure centres in the Borough of Hyndburn, Lancashire and Chesterfield, Derbyshire (which are being taken over by Universal Civils and Build).