West Midland companies are continuing to struggle in the face of the recession, with thousands  facing either significant or critical problems in the last quarter, according to Begbies Traynor's latest Red Flag Alert.

Even though the rate of increase in companies facing problems has slowed since the first quarter of the year, there is little evidence yet of a real recovery emerging, according to experts at the business rescue, recovery and restructuring specialist who compile the monitor of the early signs of company distress.

In the West Midlands, there were 15,590 companies with significant problems in the second quarter, up 46 per cent on the same period in 2008 but down 15 per cent on the first quarter of 2009. The number of companies facing critical problems - 514 - was up 49 per cent year-on-year but down eight per cent on the first quarter.

Companies with significant problems are defined as those with either a court action and/or average, poor, very poor, insolvent or out date accounts. Companies with critical problems are those with County Court Judgments totalling £5,000 or more and/or Wind-Up Petition related actions.

Nationally, the number of companies with significant problems is up 43 per cent year-on-year to 190,559, but down 14 per cent compared with the first quarter of 2009. There are 6,088 companies facing critical problems, again up 43 per cent year-on-year but down one per cent compared with the first quarter.

Recruitment, engineering and manufacturing are bearing the brunt, with a substantial increase in problem companies, while construction and professional services have in contrast shown reductions

John Kelly, partner at the Birmingham office of Begbies Traynor, said: "It's still tough out there and all the signs are that it will take some time for any recovery to take effect.

"The overall increase in the number of problem companies has undoubtedly slowed for the last two quarters, which is better news.

"However, we believe that corporate and personal insolvencies, as with unemployment, tend to be indicators that lag any change in economic activity and are therefore likely to continue to rise for up to two years after the commencement of economic recovery. 

"Previous experience, together with an analysis of the current recession, strongly suggests that the period from this year to 2012 will see a large number of corporate insolvencies, probably above the peak levels experienced during the height of the last major recession in 1992."

Red Flag Alert looks at information daily and makes quarter on quarter and on year on year comparisons of detrimental data. A significant number of companies with significant or critical problems tend to enter into a formal insolvency procedure within a year.