The Ripple Effect of ISG’s Collapse: Impact on Subcontractors and Hensall Mechanical Services
ISG’s collapse into administration in September 2024 left a £1 billion void in the UK construction industry, sending shockwaves through the supply chain that are still being felt in 2025. For specialist subcontractors like Hensall Mechanical Services, the question isn’t just about survival, it’s about resilience in an era of upstream insolvency.
The fall of a “Tier 1” giant like ISG is rarely an isolated event. It triggers a domino effect, stripping liquidity from the market and leaving thousands of unsecured creditors fighting for pennies on the pound. As creditors review the wreckage, attention turns to the stability of key supply chain partners.
This article analyzes the specific impact of the ISG collapse on the Mechanical & Electrical (M&E) sector, using Hensall Mechanical Services as a case study for how robust, diversified subcontractors navigate the fallout of a major contractor failure.
The Scale of the Crisis: ISG’s £1bn Deficit
To understand the pressure on firms like Hensall, we must first look at the raw numbers left behind by ISG. When the firm appointed EY as administrators, it wasn’t just a bad quarter—it was a systemic failure.
The Immediate Fallout (September 2024)
The administration immediately halted work on 69 live government projects, including prisons and schools. But the real devastation was buried in the ledgers of the supply chain.
According to the EY Administrator’s Proposals released in late 2024 and updated in 2025:
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Total Deficit: Over £1 billion owed to creditors.
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Trade Contractor Debt: Approximately £180 million is owed specifically to the supply chain (unsecured creditors).
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Redundancies: Over 2,200 direct ISG staff lost their jobs, but the ripple effect on subcontractor labour forces has been far wider.
For M&E contractors, this debt is often toxic. Unlike a labour-only bricklayer who can walk off-site, M&E firms have often paid for expensive plant machinery and materials (HVAC units, boilers, cabling) that are now locked behind the gates of a closed site.
Why M&E Subcontractors Are Most Vulnerable
Mechanical and Electrical contractors face a unique “Cash Flow Crunch” during a Tier 1 collapse.
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High Upfront Costs: M&E packages are material-heavy. Subcontractors pay manufacturers months before they get paid by the main contractor.
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Work in Progress (WIP): When ISG stopped trading, millions in “unbilled” work was effectively lost.
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Retentions: The standard 3-5% cash held back for defects is now an unsecured debt. In the hierarchy of insolvency, this money sits behind the banks and HMRC.
The Credit Risk View: In an administration, “Unsecured Creditors” (like subcontractors) are last in line.
First: Fixed Charge Holders (Banks)
Second: Preferential Creditors (HMRC & Employee Wages)
Last: Trade Creditors (You) Result: Most subcontractors can expect to receive less than 1p for every £1 owed by ISG.
Case Study: ISG and Hensall Mechanical Services
Amidst the panic, it is crucial to separate “exposure” from “insolvency.” While many smaller firms folded, Hensall Mechanical Services remains an active, trading entity in 2025.
Historic Partnership & Project Exposure
Hensall Mechanical Services (part of the Hensall Group) has a long history of delivering high-quality projects alongside ISG, particularly in the leisure sector.
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Urmston Leisure Centre: Hensall secured the £1.5m M&E refurbishment package for this major Trafford Council redevelopment, with ISG as the main contractor.
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Hyndburn Leisure Centre: Another collaborative project focusing on decarbonisation and M&E upgrades.
These projects highlight the scale of work Hensall undertakes. When a partner like ISG fails, the exposure on such contracts can be significant. Subcontractors are often left with unpaid applications for payment and unrecovered retention monies from completed works.
Resilience in the Face of Tier 1 Failure
Despite the sector-wide chaos, Hensall Mechanical Services has demonstrated the resilience typical of a well-capitalised “Tier 2” contractor.
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Active Trading Status: According to Companies House filings (updated August 2025), Hensall remains active.
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Diversification: unlike firms that relied solely on ISG for revenue, Hensall’s portfolio spans multiple sectors and clients.
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Frameworks: Many of the leisure projects (like those via Alliance Leisure) have robust frameworks that allow replacement contractors to step in, minimising the total loss for the supply chain.
By spreading their risk across different main contractors and sectors (Hospitality, Public Sector, Leisure), firms like Hensall insulate themselves from a single point of failure.
The “Domino Effect” in the UK Supply Chain (2025 Outlook)
The dust may have settled on the headlines, but the financial reality for the supply chain is still biting in 2025.
The Battle for Retentions
For many subcontractors, the biggest loss isn’t the current invoice, it’s the “bank” of retention money built up over years. If a subcontractor finished a job for ISG in 2023, half of their retention (2.5%) would be due for release in 2025. With ISG in administration, that cash is effectively gone. For a firm with £10m turnover, this could mean £200k-£300k of pure profit wiped off the balance sheet instantly.
Project “Limbo”: The Paused Prison & Leisure Contracts
One of the most damaging aspects of the collapse is the “frozen” site.
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Scenario: You are an M&E subcontractor on an ISG prison project. You have £50,000 of tools and £100,000 of copper pipe on site.
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The Reality: The site is locked by the administrators. You cannot retrieve your goods (as title may have passed to ISG upon delivery), yet you cannot bill for them. This “limbo” state drains working capital faster than almost any other factor.
Strategic Defense: How Subcontractors Can Protect Themselves
If you are a subcontractor reading this, the ISG collapse is a warning to “future-proof” your business immediately.
1. Steps to Take Immediately (The Proof of Debt)
If you are owed money by ISG, you must formally register your claim.
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Action: Submit a ‘Proof of Debt’ form to the Joint Administrators (EY).
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Evidence: Collate all unpaid invoices, signed timesheets, and proof of materials delivered.
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Retentions: distinct claim for retention monies, even if they aren’t “due” for release yet.
2. Future-Proofing: Credit Insurance and Due Diligence
The era of trusting a “big name” is over.
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Credit Insurance: Policies are expensive, but they pay out when a client goes bust. If you are doing £1m+ with a single contractor, insurance is non-negotiable.
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Warranties & Step-In Rights: Ensure your contracts allow you to speak directly to the end client (the Council or Developer) if the main contractor fails. This can allow you to get paid directly for finishing the work.
Conclusion
The collapse of ISG is a generational shock for UK construction, leaving a £1 billion deficit that will take years to clear. While the headlines focus on the lost jobs at ISG, the real story is the resilience of the supply chain.
Firms like Hensall Mechanical Services prove that while exposure to a giant’s collapse is painful, it is survivable through diversification, strong balance sheets, and operational agility.
Key Takeaway: The “ISG effect” has rewritten the rules of risk. In 2025, a subcontractor’s stability is defined not by their biggest client, but by their ability to survive losing them.
If you are concerned about supply chain exposure or need to file a claim, consult a credit risk specialist or insolvency practitioner immediately. Do not rely on “hope” as a strategy.
FAQs
Is Hensall Mechanical Services in administration?
No. As of late 2025, Hensall Mechanical Services remains an active, trading company. While they worked on projects with ISG, they have weathered the collapse and continue to operate.
How much debt did ISG leave to subcontractors?
According to the EY administrator’s report, ISG left over £180 million in debt specifically owed to trade contractors (unsecured creditors).
Can subcontractors recover retentions from ISG?
It is highly unlikely. Retentions are classified as unsecured debts. Unless the funds were held in a protected trust (which is rare), they are part of the general pot used to pay preferential creditors first.
What projects were ISG working on when they collapsed?
ISG had 69 live central government contracts, including major prison builds (e.g., Grendon), police stations, and numerous leisure centres like the Urmston redevelopment.
Who are the administrators for ISG?
The Joint Administrators for ISG’s UK operations are partners from EY (Ernst & Young).
What happens to paused ISG construction sites?
Many sites were frozen immediately. In 2025, some have been re-tendered to new main contractors under frameworks like the “Alliance Leisure” framework, allowing work to restart.
How do I file a proof of debt against ISG?
You must submit a formal claim to EY via their dedicated creditor portal. You will need to provide evidence of the debt, including contracts, invoices, and proof of work completed.
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