More than 160,000 companies are experiencing "significant" or "critical" financial distress and between them owe in excess of £55bn, according to Begbies Traynor.

In its latest Red Flag update, which highlights troubled businesses, the professional services group found a 14pc jump in the number of distressed companies. There were 161,601 red flagged companies in the first quarter of this year compared with the final quarter of 2009.

Although some of the increase was put down to a normal seasonal uplift at the start of a year, Begbies estimated half the rise was due to a more aggressive approach by trade creditors who were more willing to take court action against their debtors.

Bad weather and soaring input costs were also factors. Among the worst hit sectors were property services, where problem companies jumped 42pc, construction companies which saw a 30pc increase, retail firms (up 19pc), and recruitment, which also saw a 19pc rise.

Despite a rebound in the economy and equity markets, the latest figures represented the second successive quarter where the number of problem companies increased. It marks a renewed rising trend after company financial problems had begun to ease last year – from 185,772 troubled businesses in the first quarter of 2009 - helped by massive Government and economic stimulus packages.

Begbies said its experience of previous recessions showed the recovery phase of the economic cycle presented the greatest challenge to vulnerable SMEs and it warned the withdrawal of Government support needed to be handled carefully to ensure a soft landing.

Begbies defines companies with significant problems as those facing court action or with poor or out of date accounts, while critical refers to County Court Judgements totalling more than £5,000 or winding-up petitions.

Ric Traynor, executive chairman of Begbies Traynor, said while the economy appeared to be showing positive signs of recovery, the scale of company liabilities represented a serious risk to creditors.

Helia Ebrahimi, Senior City Correspondent, www.telegraph.co.uk, 27 Apr 2010