BUSINESSES are being warned against a false sense of security after insolvencies fell to their lowest quarterly total on record.

R3, the insolvency and restructuring trade body, says government support has delayed rather than prevented the financial pain of the pandemic.

Figures for England and Wales showed 2,384 corporate insolvencies in the first three months of 2021 – the lowest quarterly total on record and a fall of 21.9 per cent on the fourth quarter of 2020.

It is also a drop of 38.3 per cent on the first quarter of 2020.

Garry Lee, chair of R3’s Southern and Thames Valley region, which covers Dorset and Hampshire, said: “The quarterly fall in corporate insolvencies – to the lowest quarterly total on record – has been driven by a drop in all corporate insolvency processes.

“However, the increase in corporate insolvencies between February and March of this year, which was reported earlier this month, suggests corporate insolvencies may now be on the rise.

“It’s clear government’s support measures are still helping to keep businesses going, but they have pushed back rather than prevented the financial pain of the pandemic from translating into a sharp, sustained increase in corporate insolvencies.”

Corporate insolvencies between April 2020 and March 2021 fell by more than a third compared with the same period a year earlier, while gross domestic product (GDP) fell nearly eight per cent.

Mr Lee, an associate director in the recovery and restructuring services department at accountancy firm Smith & Williamson’s Southampton office, added: “A drop in corporate insolvencies of this scale during an economic climate like this suggests that corporate insolvencies are likely to rise – and rise sharply – in future.

“It is important that businesses do not become complacent and instead face the challenges facing them in the coming months as Covid restrictions lift and government support is expected to end.”

R3 is urging businesses to keep an eye on cashflow to ensure they do not fall into the trap of over-trading; have a plan for reopening in a sustainable way; and consider how they will manage when government support ends.

Mr Lee said: “Many company directors have delayed planning ahead. But they need to use the remaining time they have to put a plan in place for the final quarter of this year and beyond, before the majority of the measures end in June, and furlough is wound up in September.”