"Three to Four More Bankruptcies"...Mid-Sized Construction Firms Targeted for Liquidation [Construction Crisis Report]

Wave of Bankruptcies Among Construction Firms
Hongseong Construction, Ranked 197th, Files for Rehabilitation
Delayed Collection of Receivables Leads to Rare Case of Profitable Bankruptcy
Many Executives Forced to Sell Personal Assets to Secure Operating Funds

"It is known that 3 to 4 mid-sized construction companies in this area alone are facing the risk of bankruptcy."

Since the beginning of this year, a total of 11 general construction companies have filed for court receivership. These are mid-sized companies ranked within the top 200 in construction capability evaluation. Earlier this month, a general contractor ranked sixth in Gyeongbuk joined the line of companies entering court receivership. As the number of construction companies going bankrupt quietly and without much notice increases, construction workers are growing anxious about the potential loss of their jobs.

According to the Construction Industry Knowledge Information System of the Ministry of Land, Infrastructure and Transport, as of July 25 this year, the number of general construction companies that reported closure reached 376, an increase of 37 cases (11.6%) compared to the same period last year (337 cases). This means that, on average, three companies closed their doors every day.

The head of a mid-sized construction company said, "Even in our region alone, 3 to 4 mid-sized construction firms are on the verge of bankruptcy and are being considered for restructuring." He continued, "There is no way to reduce fixed costs such as rent, and we don't have enough cash to pay employees' salaries." He added, "We have even resorted to private loans, but most companies are keeping quiet and just trying to endure." Another executive at a mid-sized construction company commented, "The financial authorities seem to believe that as long as a few large companies survive, that's enough," and added, "Small and mid-sized construction companies are effectively being treated as targets for liquidation."

The sense of crisis over a wave of bankruptcies is erupting in many places. Hongseong Construction, ranked sixth in Gyeongbuk and 197th nationwide, recently filed for corporate rehabilitation. The company had posted an operating profit of 5.8 billion won in the previous fiscal year (July 1, 2023 to June 30, 2024). However, delays in collecting outstanding payments for construction work led to liquidity problems, resulting in a rare case of bankruptcy despite being profitable. On July 1, the Second Bankruptcy Division of the Daegu District Court issued a comprehensive prohibition order, freezing all creditor rights before the formal commencement of rehabilitation proceedings for Hongseong Construction.

The apartment construction site in Paldang-dong, Buk-gu, Daegu, where construction progress has been halted due to continuous delays in groundbreaking. Photo by Kang Jinhyung

There are also many so-called "zombie construction companies" that have not gone bankrupt but are unable to carry out any business. A well-known company, referred to as A Construction in Jeonju, Jeonbuk, has halted construction on a 100 billion won mixed-use office complex for several months. The company was unable to pay for construction costs, forcing it to withdraw its workers. Only the steel framework remains at the empty site. This company avoided formal bankruptcy by not issuing promissory notes. A representative of the company said, "We will not proceed with this project any further. Another company will take over."

There are also many cases where company management is selling off personal assets to secure operating funds. In particular, for projects that chose to sell units after completion, the sales rate remains in the 20 percent range, so after financial institutions recover their loans, there is virtually no profit left.

Developers are also on the brink of collapse. An executive at a major development company said, "Construction costs have risen so much that even if we sell units, we incur losses," and added, "It is fortunate if the builder is paid on time for construction costs." He explained, "It is essentially a matter of survival?whether we live or die?and many developers are disappearing quietly." He described how it has become common for companies to lay off all employees except for the CEO and an accountant, or to relocate their offices to unsold commercial spaces in order to reduce operating expenses.

During past crises, even when the market was sluggish, developers would boldly purchase land at prices discounted from market value. However, in recent years, it has become difficult to find such developers. Lee Juhyun, a senior researcher at GGI Auction, analyzed, "In the past, developers would have been interested in prime land coming up for auction, but now there is no demand," and added, "There are increasing cases where even land suitable for construction in commercial areas near industrial complexes, such as in Dalseong-gun or Sinseo-dong in Dong-gu, Daegu, is left unsold after auction."

Order of Articles in the 'Construction Crisis Report' Series

<1-1> Construction Sites at a Standstill, the Collapse of Day Laborers' Livelihoods
<1-2> "Three to Four More Bankruptcies"...Mid-Sized Construction Firms Become Targets for Liquidation
<2-1> What Was Thought to Be a 'Lifeline' Became a 'Trap': The PF Crisis
<2-2> Easing Multi-Homeowner Regulations, the Key to Reviving Local Real Estate
<3-1> "Every Day Is Nerve-Wracking": The Shaky Subcontractor and Downstream Industries
<3-2> Even Major Companies Cannot Avoid Wage Arrears
<3-3> LH and Local Governments Also Facing Wage Arrears
<3-4> Even the President Steps In...Urgent Need for Vertical Structure Reform
<3-5> The Company That Survived Without Illegal Re-Subcontracting
<3-6> Joined Hands at a Collapsed Site
<4-1> Foreign Construction Workers Encroaching on Domestic Jobs
<4-2> From 'Regulating Foreigners' to 'Protecting Domestic Workers'
<4-3> The Root Cause of Worsening Profitability: Frequent Rework