Oh no! I have ordered some goods from XYZ company and it is now in administration!!! Argghh what happens now??
Unfortunately, it can happen that a business that supplies direct to the consumer, goes into administration and shoppers and other consumers are worried they have lost out. In many cases, many items are not of significant value i.e. mail order clothes or electronics. However, if it involves advance payment or a deposit for a big item like a new kitchen or holiday then it can be particularly worrying as the figures could be thousands. For example, when Smallbone of Devizes went into administration, some people had paid 60% deposits on a whole kitchen, costing £50,000 in advance!
If you’ve ordered something from a company that has just entered administration then it can be difficult to get your money back , let alone knowing who to contact. If you find yourself in this situation, then it’s essential to look at all the options available to consumers when a business gets in trouble.
Firstly, what is administration?
When a company goes into administration, administrators (licensed insolvency practitioners) take control of the business and will look to restructure and sell assets to pay off creditors (lenders and trade suppliers). The priority will always be to creditors and getting the best return for them.
What do I do if I’ve ordered something?
If you’ve purchased the item with a credit card, contact your credit card provider to arrange a refund, if possible, and always keep receipts in case you need to claim. To make a successful claim, the single item or service has to be valued at £100 or over (up to £30,000). Even if you’ve only paid part of the purchase with a credit card (and it’s less or more than £100), you can still claim. The credit card provider will be liable under section 75 of the Consumer Credit Act.
If you’ve used a debit card or the price of the item was below £100, you may be able to claim using the chargeback system (your bank claims from the bank that received the payment).
Can I still refund items?
If you want a refund an item you’ve already purchased, it’s unlikely you’ll be able to return anything under the usual company policy, however, you may be able to make a claim with the administrators. There is no guarantee you will get anything back though as it depends on the company’s financial situation.
What about Gift Cards?
This is an interesting one as it is particularly frustrating for the person who sent the gift, as well as the recipient. This means that any goodwill attached to the brand is rapidly lost when they refuse to honour gift cards. Strictly speaking paying out on a gift card when there are lots of people owed money is not treating creditors fairly as that money is being taken away from other deserving creditors and if by paying out the full value of the gift card they are giving those people special treatment.
One could argue that you have effectively loaned the company money, so should get some back. Lenders often get their money first but they have secured their loan against an asset. It so happens that the administrators have often taken the commercial decision that it is to the benefit of all creditors that gift cards are honoured as otherwise the brand would be severely damaged and likely to lose custom. This decision is more likely to occur if they are already in talks with a possible purchaser who is in effect buying any goodwill. If the business looks like it has no real brand value then gift cards will not be honoured.
It is worth noting that in the administration of Game and HMV gift cards were honoured and the companies still survive, However, Maplin and ToysRus cards were not honoured and both have pretty much disappeared.
Customers are usually at the back of the line when it comes to retrieving money owed; creditors (lenders, banks, etc.) and employees are among those looked at first.
If you’re not sure how you can get your money back, find out who is handling the administration and contact them. They should have a website, phone number and email address or a customer support contact. The company itself may also have set up a customer services hotline. It is a legal requirement that the website of the company in administration has the administrator’s details on it. However, this does not happen immediately. One place to look could be the London Gazette at www.london-gazette.co.uk.
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.