Frances Coulson, R3 President, said: "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."
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