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When a skaven character denies a challenge he's placed in the last rank of his unit, taking him out of range of atacks.

Losses are removed from the last rank.

Does this mean that I have to allocate wounds to my character when there is nobody left in the last rank but him? This would seem just a 'little' bit counterproductive...

IIRC you remove units from the back unless they have a specific weapon or are a special character. Since the idea is to represent "Skaven A takes a sword to the brain, but as he is falling Skaven B picks up the Banner".

The only reason you are removing casualties from the back is for ease of play
Having two units pushed together, then taking models out and pushing the models forward into contact would be a difficult waste of time.
They aren't actually being killed in the back row.

So to be explicit, no - if a character isn't in b2b he doesn't take wounds.

Anybody has the specific rule to back this up? Cause everything in the BRB seems to assume that the character is in the front row.

The only rule which states anything about wound allocation, is the one that says that atacks allocated to the champion can't spill over to the unit (but the other way arround is possible).

the only way a character can take hits in melee is if they are specifically allocated to him, which requires btb contact.

The only way you can hit a character without being btb is if the hits are distributed as shooting and there are less than 5 rnf models left.