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Third of retailers in rent day risk 25 September 2013

Almost one third of UK retailers are at risk of insolvency within the next 12 months ahead of the October Rent Quarter Day, according to research from trade body R3.

The research found 31% of retailers currently have a “higher than normal” risk of entering an insolvency procedure within one year. Just 25% of all UK businesses have the same failure risk.

Rent Quarter Days see retailers pay three months of rent up front, historically resulting in a spike in insolvency levels.

Liz Bingham, president of R3, said: “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 stresses 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.”

Following July’s rent deadline, there were several high-profile retail casualties including Modelzone, Nicole Farhi, and Dwell.

Retail insolvency levels often rise following Rent Quarter Day as firms look to delay insolvency proceedings until after rent is due, thanks to the “complex rules on administration costs” that have developed in recent years.

Bingham said: “As a result of a series of court decisions, there are certain costs that have to be paid by businesses in administration before money can be given back to creditors; rent is one of these payments.

“By delaying administration until after rent is due, unpaid rent becomes just another debt to be repaid to creditors, with no special priority.

“This could see a retailer rescued rather than dissolved, but, as a whole, the rules are a mess. They are a bad deal for landlords, retailers, and employees. Clarification from government is needed.”

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