Word of Advice

5 June 2007

When businesses go bust

Your bed which has lasted so long has finally had it. Springs are poking up from the mattress, waking you up with a start in the middle of the night. And you and your partner seem to spend most of the night stopping yourselves from sinking into the dip in the middle. It’s time to get a new one.

You take a trip to your local shopping centre and decide to treat yourselves to a brand new state-of-the-art bed. You decide you deserve a few extra frills, like fitted drawers in the frame. The retailer says “not a problem,” so you put down a $500 deposit and walk out the door.

A few weeks pass and there’s no sign of your comfy new bed. Tensions are running high in your household due to sleep deprivation. You take a drive to the store. As you approach, the shop is shrouded in darkness, the door is locked and a sign on the shop window says ‘out of business’. Oh dear, is that your $500 deposit gone? But there’s no need to lose all hope, there are some steps you can take as a creditor.

When a business closes down it usually means that it’s either gone into receivership or into liquidation. Receivership is when a business is run by a receiver, instead of its own managers. The receiver acts as a caretaker who runs the business until its debts can be paid off. A business goes into liquidation if the debts can’t be paid off. With liquidation, the business and its assets, such as furniture and goods for sale, are all sold off to pay its debts.

How do I know if a business is in receivership or liquidation?

The first sign is often a notice of closure on the store window. It may state that the business has gone into receivership or liquidation, and give the name of the receiver or liquidator. If there is no sign, you can check with the Companies Office (free phone 0508 266 726) to see if they know about the store. They may be able to tell you if it has been placed into receivership or liquidation. It’s also a good idea to check whether the store closure has been noted in your local newspaper.

If you have a problem with a business that has gone into receivership or liquidation, you’ll need to contact the receiver or liquidator. You then need to lodge a claim with the receiver – contact the receiver to find out how to do this. You’ll have to put the claim in writing and provide evidence to support your claim.

Can I get my deposit back on that bed?

When a business goes into receivership or liquidation, you become what is known as an ‘unsecured creditor’. This means that you are paid last when the debts of the business are paid.

Usually there is not enough money to pay all the creditors, even after all the assets have been sold. The law has strict rules about who should be paid first. For example, staff wages must be paid before a customer with a gift voucher. The receiver would be breaking the law if they honoured the gift voucher that would prefer one creditor over another, so you might not get your deposit back.

Because of this, it’s best to try to negotiate a low deposit when purchasing goods. Some stores will place deposits in trust with a third party. That way, if the store were to go into liquidation or receivership then you would be able to get your money back. Ask if they do this before you put a deposit down. If they don’t, shop around for one that does.

What about if I’ve got goods on layby?

When you buy goods on layby, you have special protection under the Layby Sales Act. The Act says that when a store closes down you can pay off the layby and collect the goods – provided that there are goods of that type available in stock and your payments are up to date.

I paid by credit card – is there anything I can do?

If you paid by credit card you may be able to get a ‘chargeback’ from your card provider if the store has gone into liquidation or receivership. You’ll need to check with your credit card issuer to see if they will do this.

I entered into a credit contract with the store – what now?

When you purchase goods on finance, you form one contract with the store providing the goods and a separate contract with the business providing the finance. This means that if the store goes into liquidation or receivership before you receive the goods, in some instances you may still have to repay the credit provider. Your rights will depend on the terms and conditions of your credit agreement. Your best bet is to get in touch with your local Community Law Centre (details in White Pages) or your local Budget Advice Service for help and advice on what to do next.

And gift vouchers for stores in receivership?

When a business is in receivership, it is no longer the same business that sold the gift voucher. The voucher holder is owed the goods by the business and not by the receiver. This means it is very difficult to have the gift voucher honoured so try and buy vouchers that can be redeemed at more than one business. If you are given a gift voucher, try to use it as soon as possible.

What about if I’ve left goods at a store for repairs?

You should be given back the goods because they belong to you, but you will have to identify the goods and still pay for the repairs (if any were done). So it pays to take down the serial number of your goods before you take them in for repairs or label them with your name and address, or make sure you get a receipt from the business when you leave your property for repair.

Further information about your rights when a business closes down is available on our website.