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24/03/2012

Rent quarter day looms for struggling businesses

This Sunday is the deadline for quarterly rent payments, where 3 months’ rent is paid in advance for commercial properties. Already video games retailer ‘Game’ has filed a notice of intent to appoint an administrator - faced with a rent bill of £21 million. But Game is unlikely to be the only company facing rent agony this weekend.

Insolvency trade body R3 has found businesses in the retail sector are more likely than any other to be concerned about their debt levels and believes many are unable to fund expansion.

Frances Coulson, R3 President comments:

“Negotiating with your landlords is key to staving off insolvency although of course Directors must take care to avoid wrongful trading. Perhaps more businesses could pay rent on a monthly or ‘pay as you go’ basis so retail businesses are able to plan their cash flow more effectively. This is more likely to apply to newer leases however.

“We are also calling for greater clarity surrounding the issue of rent due in the event of an insolvency and whether it counts as an expense of administration. The legal ruling in the Nortel/Goldacre case in 2010 has had a detrimental effect on the rescue culture. Advance payment for rent is required despite actual usage – an administrator might only be using part of the premises for a short period of time. Adding rent as an ‘expense of administration’, the specific costs of actually trading the business, makes this rescue scenario less viable.

“The net effect means it is harder to trade a business during an administration -a recent survey of R3’s members found that on average, nearly a third (28%) of potential trading administrations are now pre-packed or liquidated because of uncertainty surrounding the expenses regime. This is clearly not ideal during the current difficult economic conditions as a traded business is arguably likely to recover more for creditors, and save more jobs.”
 


R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.