By Max Clarke

Administrations in England and Wales fell by 32% from 4161 in 2009 to 2831 in 2010. Leading the way in the recovery was the manufacturing sector, down by 37% from 761 for the full year in 2009 to 477 in 2010. The fourth quarter 2010 was, across all sectors, another recovery quarter - compared with Q4 2009, administrations fell by 24%.

Falling insolvencies in the manufacturing sector have not been the only marker of its recovery, with the sector’s purchasing manager’s index (PMI) outperforming the forecasted 56.8 to see largest the monthly gain since 1992.

Commenting on the figures Bruce Mackay, partner at Baker Tilly Restructuring and Recovery says:

“For UK PLC, this has to be good news overall, particularly in manufacturing. Transport and logistics also fared well with a 30% fall year-on-year, which could be seen as a spin-off of improvements in manufacturing as goods start to move around again. This is encouraging news for the supply sectors despite the fears of the impact of recent adverse weather conditions and fuel price increases affecting trade.

Looking ahead though, the recovery remains fragile. There is likely to be a time-lag effect which could hit the Q1 stats this year - with the impact of 0.5% negative GDP growth in Q4 2010, record bad weather and jobs uncertainty yet to be seen in full. Also the potential impact of the public spending cuts has yet to really start to bite in the corporate insolvency stats.

Earlier this week, Baker Tilly released administration statistics evidencing a 24% drop year-on-year for Q4 in administrations across England. The fall in insolvency numbers is much more pronounced in London and the South East at 37%. However, the rest of England only saw an average reduction in appointments of 14%.

Matt Haw, director at Baker Tilly Restructuring and Recovery, commenting on the low Q4 2010 figures that companies need to focus going forward:

History shows that insolvencies increase coming out of any recession as working capital requirements increase as businesses begin to grow again. We have yet to see evidence of this trend in these statistics, but businesses will need to ensure that their financial management and forecasting systems allow them to identify and properly plan with their lenders any additional funding they need to allow the business to continue to expand€

The impact of the business interruption caused by the adverse weather in December will not be felt in the company’s cashflows in until Q1 2011. However businesses need to plan to ensure this one off event does not materially impact their business performance.