Protect yourself from traders going bust
January 2009
In the current economic climate the words liquidation, examinership, receivership and administration seem to appear more often. Whether it is a company closing down or speculation about this happening, these words are of concern to everyone involved - traders, suppliers, creditors, staff and consumers.
In general, consumers may be at greater risk of suffering a loss if they have handed over money for goods or services that haven't yet been delivered to them when a trader goes out of business.
There are three main ways in which consumers hand over money on the promise of receiving goods or a service in the future:
- When they pay in full for a product to be collected/delivered at a later date,
- When they pay a deposit to secure a product or its delivery at a later date
- When they buy gift vouchers/cards
In each case, the consumer will be considered an unsecured creditor if the company ceases operation.
A company in financial difficulties can follow a range of options.
Liquidation
A liquidator has the task of winding-up a company, realising the company's assets and distributing those assets in accordance with law. In such cases, unsecured creditors sit on a list of those to whom money is owed. The law prescribes the order in which available money may be paid out and only if all secured creditors (these will usually include banks with secured loans etc) are reimbursed can any remaining money then be distributed to unsecured creditors. In the majority of cases, unsecured creditors receive little or none of the money outstanding to them.
Examinership / Administration
An examiner is appointed by the court (Companies Act 1990) for the purpose of examining the situation, affairs and prospects of the company. Consumers who find themselves affected by an examinership may still receive goods or services for which they have contracted if the company continues to trade through the examinership, but this process puts all parties dealing with the business on notice of its financial difficulties and unless a remedy to the financial difficulties of the business can be identified, the next step would often be the petition for liquidation (see above).
Administration is the UK's version of examinership. There are a number of differences between administration and examinership, however the effects for the consumer are broadly the same.
Receivership
A receiver has the task of securing the assets of a company wherein a creditor company would have inserted this facility when the two parties originally contracted. Typically, lending institutions would avail of this mechanism to secure large loans. The status of consumers in a receivership would be similar to that in an examinership, with the same warning applying regarding the likelihood of a subsequent petition for liquidation.
In each of these cases the trading status of the company in question will depend on the circumstances surrounding the appointment of the relevant officer. Some businesses may continue trading as normal whilst others may immediately begin the process of winding up.
What to do?
So what can consumers do to protect themselves from being affected by a company's closure? Here are a few tips:
- If possible, pay by credit card or by laser card. If your card-issuer operates a chargeback scheme, you may be able to recover money paid to a trader who has gone out of business
- Ask the trader how long delivery will take and, if you are happy with this timeframe, get them to put this in writing before you place a deposit. If the delivery fails to take place on time, give the trader the opportunity to agree a new, reasonable and final delivery time. If they will not agree to this or this new deadline is not met, you should look for your deposit back. Remember, if the company enters any of the processes listed above, you may not be able to pursue it for the return of your deposit as each of the processes has the effect of protecting the business from being sued by creditors. In such cases, you are likely to have to deal with any examiner/receiver or liquidator appointed
- Consider the contract seriously before paying a large deposit on goods that will take a long time to be delivered
- Think carefully before deciding to pay the full amount in advance and do not pay in full for items if there is a long delivery period involved
- If you have paid for expensive items, don't ask the retailer to hold, or store them for you for indefinite periods. (Occasionally consumers have asked retailers to store items as part of the deal, particularly in cases where they are in the process of buying or changing their house or apartment)
- When goods are delivered, check immediately for possible faults and that the goods are in fact the items you paid for. If you need to return them, decide if you still want the goods you had ordered or, if delivery will take another long period of time, whether you want a refund of your deposit
- Find out if the company is a subsidiary or stand-alone company. You can get this information from the Companies Registration Office. If a subsidiary company goes out of business, you may still be able to make a claim against their parent company
- Don't hold on to credit notes or gift vouchers for too long. Remember that the only opportunity of you getting your money back in respect of credit notes or gift vouchers will be as an "unsecured creditor"
If you have paid money over to a trader who goes out of business before your goods are delivered, what can you do?
- Check the company's website and also the website of the liquidator, examiner or receiver to get the latest news on the company's situation. Contact the official appointed to look after the company's affairs for further details
- A retailer is always responsible for putting things right if a fault occurs with something they sold you. However, if a company is closing down or has already closed down, you may not be able to deal directly with the retailer. In a case where you have been given a guarantee by the manufacturer you would have the right to make a claim against the manufacturer if the goods were found to be faulty
- In certain circumstances if you pay for goods by credit or debit card you may be able to claim against the retailer under the payment card processing rules. You should contact your card issuer to find out more about seeking a refund through the payment card chargeback process. It is important that you contact the card issuer directly - contact details will usually be on the back of the relevant payment card
- If the business that has gone into liquidation was a subsidiary of a larger company, it may be possible to claim directly from the parent company
- If a retailer's supplier goes out of business, rather than the retailer itself, the consumer - whose contract is with the retailer - should be able to seek redress from the retailer
Information on the liquidator/examiner/receiver for the company can be obtained by contacting the Companies Registration Office (CRO) on 01- 8045200/1, or lo-call 1890 220 226.
Visit the CRO website