Recovery remains fragile warns Begbies Traynor

THE ECONOMIC recovery in Britain appears to have started but it remains fragile, according to new figures from a business recovery specialist.

Begbies Traynor’s latest Red Flag update – which monitors the warning signs of companies in distress – has discovered that an average of 34 companies in Greater Manchester have faced ‘critical’ problems including county court judgements or winding-up petitions in each of the first three months of 2010.

This was an increase from 28 companies over the same period last year.

In Liverpool, an average of 20 companies have also faced ‘critical’ problems in the first three months of the year – up from 19 last time.

In Greater Manchester, an average of 1,108 companies have faced ‘significant’ problems in the first three months of the year – down from 1,120 last time

These are businesses with either a court action or poor, very poor, insolvent or out of date accounts.

In Liverpool, an average of 500 companies have found themselves in the same position over the same period – up from 452 last time.
 
Begbies Traynor – an acknowledged business recovery specialist – has discovered that over 161,601 companies nationally are experiencing either ‘significant’ or ‘critical’ financial distress – up 14% or 20,074 on last year.

Between them they owe over £55bn to creditors, suppliers and service providers.

Executive chairman Ric Traynor said: “While nationally the economy appears to be showing positive signs of recovery, the magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress.

“It is this ripple effect which represents a real threat to a sustained economic recovery.

“Faced with these risks, and a growing need to bolster their own funding for the recovery phase, trade creditors are increasingly seizing the opportunity to take action against their debtors in order to raise much needed working capital.

“This shift in behaviour heralds a new phase in the cycle, putting businesses experiencing financial problems at greater risk of failure.”

The sectors worst affected in the first quarter of 2010 include construction, in which  companies experiencing significant or critical financial problems were up 30%, professional services up 19%, property services up 42%, recruitment up 18% and retail up 19% on the previous quarter.

Across the North West and North Wales, Begbies Traynor’s research showed that a total of 19,081 companies had faced critical or significant problems over the past quarter – down from 21,457 in the same period last year.

Manchester partner Gary Lee said: “The number of companies across the North West facing significant and critical problems has reduced significantly in the first quarter of 2010 compared to the same period in 2009, which is consistent with an overall slight economic recovery.
 
“However, February was a difficult month with 7,017 businesses in the North West facing significant problems – higher than almost every month in 2009 – but so far these statistics have not translated into formal insolvencies in the first quarter.
 
“The mix of sectors affected by significant problems has changed quite dramatically over the past 12 months – with 27% of the businesses facing significant problems operating in the construction sector compared to only 14% this time last year.

“Towards the end of 2007 we saw a similar pattern with this particular sector acting as a barometer for the whole economy – slowing down before any other sector.”