Retailers delaying administration as quarter day approaches

By September 27, 2013Finance, News

The North West’s retail sector could see a spike in insolvencies following the next rent quarter day which falls this Sunday, says insolvency trade body R3.

Rent quarter day sees retailers pay three months rent in advance and retail insolvencies often rise in the weeks afterwards. Complex administration rules mean struggling retailers often delay administration until after the quarter day has passed as this gives them a better chance of rescue.

New research from R3 shows that nearly a third of retailers in the North West are considered to be at a higher than normal risk of failure in the next 12 months.
The figures, compiled using Bureau van Dijk’s ‘Fame’ database, show that 31 per cent of retail businesses in the region – 3,921 out of a total of 12,701 – could face closure in the coming year. This compares to 26 per cent of businesses at risk in the North West overall.

Jeremy Oddie, North West chair of R3 and head of recoveries at accountants Mitchell Charlesworth, comments: “High street retailers have had a tougher time than other sectors in the past few years. Now, after dealing with recession, a sluggish recovery, and changing consumer habits, traditional retailers will be put under more pressure as they are exposed to the stress of expansion as economic recovery picks up.

“Insolvency isn’t the end of the road for a retailer though. It can be an opportunity to restructure and rethink the business model. Many retailers have come out of administration and gone from strength to strength.”

Rent quarter days not only bring the added pressure of a large rent bill but also a spike in insolvencies due to the laws on rent in retail administrations. If a business is already in administration before quarter day, the rent must be paid in full before any of the suppliers and other bills. If it goes into administration after rent quarter day, the rent is just another debt to be repaid with no special priority – giving the business a better chance of being rescued.

R3 says the rules put jobs at risk and reduce returns to creditors as it’s often uneconomical to try and rescue a business when administration costs are likely to be high. Liquidation is often the only option. There is also uncertainty over precisely what might be owed as an administration expense. Jeremy Oddie adds: “The current rules are a mess. They are a bad deal for landlords, retailers, and employees and clarification from government is needed.”

Rent quarter days traditionally fall on 25 March, 24 June, 29 September, and 25 December though 1 January, 1 April, 1 July, and 1 October are modern alternatives for some leases.

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