ISG’s collapse in September 2024 left more than £1.1bn of debts.

Subcontractors on MoJ prison projects were among those left unpaid for completed work, despite operating under PBAs and Whitehall insisting that there cash was ringfenced.

Instead, funds were swept into ISG’s insolvency estate under UK rules, leaving subbies high and dry.

Fintech platform ProjectPay, led by entrepreneur Louise Stewart, is co-ordinating the actions which are expected to be lodged with the court before Christmas.

Presently finishing trade subcontractors on prison jobs are behind the action.

It is expected that the action will be expanded to all ISG subcontractors that remain unpaid, which is at least 500 firms.

Stewart said: “Subcontractors were promised protection that simply did not exist.

“PBAs only protect money already in the account. They fail to stop payments being captured by insolvency administrators. Small businesses, families and taxpayers have all been let down and misled.”

Ernst & Young’s role as administrator is also under the spotlight for a possible conflict of interest after it was appointed as administrator despite having previously provided restructuring advice to ISG’s parent company and its banks.

Iain McIlwee, chief executive at the Finishes and Interiors Sector, warned: “For too long, subcontractors have been picking up the tab for the failings of others.

“We had Carillion and nothing happened. The numbers associated with ISG are again eye watering, but between these two there have been numerous failings that have felt like death by a thousand cuts to the supply chain.

“It is not right that hard working specialists find themselves at the back of the queue when contractors collapse, shouldering far more than their share of the burden for poor procurement, contract administration and at times questionable business practices.

“The ISG case shows that we urgently need reforms that provide genuine protection so that small businesses are not carrying the cost of systemic failure.”

The looming lawsuits could be the most significant yet in the long-running row over contractor insolvencies and failed payment safeguards, with campaigners pushing for US-style protection laws to end what they call “death by a thousand cuts” for the supply chain.