Construction giant went bust with debts of £1bn

Construction giant ISG collapsed with estimated debts of almost £1 billion, according to newly published filings that lay bare the scale of the financial fallout from its implosion.
Estimates made by company directors, filed at Companies House last week, show that ISG went bust in September owing £981 million to creditors. It was holding dozens of public sector contracts, including work building schools and prisons, that were worth a total of more than £1 billion at the time of its collapse.
The bulk of ISG’s debts, about £615 million, are owed to “third-party creditors”, a group composed largely of suppliers, typically small contractors surviving on thin margins. A further £90 million is owed to HM Revenue & Customs and another £270 million of ISG’s debts are made up of inter-company loans.
Directors estimate that the total “realisable value” of ISG’s assets is just £35 million. This means that creditors, including the taxman, which is first in line for repayment, stand to recover only a fraction of their debts. ISG, which also worked on projects at Lord’s Cricket Ground and the velodrome for the London Olympics in 2012, has appointed EY as administrator.
ISG’s demise was the biggest in the construction sector since Carillion, which failed with £7 billion worth of debts in 2018. That collapse sent shockwaves through the company’s supply chain and prompted calls for an overhaul of the audit sector, after accountancy firm KPMG was found to have botched its audit of Carillion.
In response, ministers promised to create a new accounting watchdog with more robust powers to scrutinise auditors and pursue directors. However, audit reform has been shelved by successive governments, and the reform package is yet to be passed.
The new Labour government has committed to creating a new audit regulator with greater powers to scrutinise the audit work of more privately held companies, such as ISG.
Labour MP Liam Byrne, chair of the business select committee, said ISG’s collapse provided “fresh evidence for why urgent reform of the British audit industry is now so essential … Our committee will want to make sure the new Audit Reform and Corporate Governance Bill is fit for purpose, and that means learning the lessons from the shambles of ISG’s demise.”
ISG’s external auditor, the accountancy firm MHA, said it had delayed singing off the company’s 2023 audit because of going concern issues.
Separately, the Chartered Institute of Internal Auditors (CIIA), a professional body representing 10,000 internal auditors, has written to Byrne and Jonathan Reynolds, the business secretary, to call on the government to investigate ISG’s internal governance structure prior to its collapse. The CIIA is concerned that ISG’s internal audit functions were neither sufficiently robust, nor independent.
Internal audit functions scrutinise business risks and typically report to an audit committee, which informs the board over a company’s health. Some organisations, such as banks, are required to have an internal audit function. However, construction firms such as ISG are not, and instead are given discretion to manage risks as they see fit.
ISG did not have an audit committee at the time of the collapse. In 2022, its internal audit function was renamed the “business assurance” unit. The company claims this performed the same internal auditing functions objectively and robustly. The unit reported to a risk committee, from which it was independent, rather than an audit committee. ISG was also externally audited.
There is no suggestion that ISG flouted any reporting requirements, and its administrators have not alleged that its internal audit arrangements were insufficient. ISG was audited externally by MHA.
The CIIA says that best practice dictates a company of ISG’s size would have its own independent, standalone internal audit function and an audit committee. The CIIA also claims that five other construction firms holding public infrastructure contracts may also be operating without sufficient internal audit functions.