Insolvency specialist Begbies Traynor today warned its bulging profits will be lower than many in the City hope, but forecast a flood of new business in the coming years as the recession grinds companies into the ground.

Executive chairman Ric Traynor said the prospects for insolvency and corporate recovery work “remain very strong”, and predicted “an increased flow of work for many years to come” as a result of the downturn.

Its recent “red flag alert”, which acts as an early warning system for firms in trouble, found an 87% increase in companies with “critical” problems in the first three months of the year. Traynor said: “Regrettably, experience tells us that the company and personal insolvencies, like unemployment, are a lagging indicator, and are therefore likely to rise through the recession.”

The firm has taken on an extra 40 staff in its insolvency division, which accounts for about 80% of revenues. But the rest of the business, particularly corporate finance, is struggling and the firm has axed a dozen staff in the past 12 months.

Traynor said profits for the year ended 30 April were “significantly ahead” of last year's £5.7 million, thanks to the insolvency division, but at the “lower end of current market expectations” of between £9.5 million and £10.8 million.