Back to listing

22/06/2012

Rent quarter day test for struggling businesses

Sunday June 22 is the next deadline for quarterly rent payments, where 3 months’ rent is paid in advance for commercial properties.

This hefty bill comes as insolvency on British high streets has already seen over 21,000 jobs lost since the start of last year, due to difficult economic conditions and the rise of internet sales. Research by insolvency trade body R3, using the Bureau van Dijk Fame database, has found that in the retail sector, 26% of businesses are currently in the ‘caution’ or ‘high risk’ band, in terms of likelihood of company failure in the next twelve months1.

Lee Manning, R3 President, comments:

“Quarter day will always present a challenge to struggling retailers. Some of their leases were agreed during the good times and will have many years to run at very high rents. Negotiating with landlords is key to staving off insolvency, although of course Directors must take care to avoid wrongful trading with regard to all of their creditors. More businesses are attempting to pay rent on a monthly basis or even negotiating turnover linked rents to help them manage their cash flow more effectively. This is more likely to apply to newer leases however.

“The internet is cannibalising ‘bricks and mortar’ retail. Retailers need to adapt their business to stay in the game as we have seen a 12% drop in footfall on the high street in the year to April but this is doubly challenging when faced with too many underperforming stores held on long and inflexible leases.

“We are also calling for greater clarity surrounding the issue of rent due in the event of an insolvency, whether it counts as an expense of the administration and over what period. Currently, advance payment for a quarter’s rent is required despite actual usage – an administrator might only be using the premises for a short period of time, but be liable for a full quarter’s rent. Until recently the law allowed an administrator to pay on a daily usage basis for premise occupancy, this was changed by the ruling in the Goldacre case.

“The net effect of this rule means it is often harder to trade a business during an administration. More businesses that are failing could be saved if the Government codifies what constitutes an administration expense, therefore alleviating any uncertainty. This current situation is clearly not ideal during the current difficult economic conditions as a business sold as a going concern by an administrator will almost invariably recover more for creditors, and save more jobs.”

ENDS


¹The QuiScore is a measure of the likelihood of company failure in the twelve months following the date of calculation.

‘At risk of failure’ is defined as a company that has a QuiScore below the normal band.
The QuiScore is given as a number in the range 0 to 100. For ease of interpretation, that range may be considered as comprising five distinct bands:
82-99 The Secure Band:
57-81 The Stable Band:
37-56 The Normal Band:
19-36 The Caution Band:
01-18 The High Risk Band:

For further information please contact:

Will Black, Communications Manager
T : 020 7566 4215 m : 07917 422 485 e: will.black@r3.org.uk

Antoinette Huka, Communications Officer
T : 020 7566 4217 m: 07825 679 462 e: antoinette.huka@r3.org.uk

Notes to editors:

  • R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners from all over the UK.
  • R3 comments on a wide variety of personal and corporate insolvency issues. Please 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 one of nine recognised professional bodies.
  • R3 stands for ‘Rescue, Recovery, and Renewal’ and is also known as the Association of Business Recovery Professionals.
     

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.