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Consumer - Traders going bust

Wednesday, 4 February 2009

In the current economic climate we are hearing more often of retailers going into liquidation, receivership and administration. While this is very bad news for the businesses themselves, many consumers are also affected. If you have paid a deposit on an item of furniture that hasn't yet been delivered or if you have a gift voucher for a store that has now gone, how are you protected? And in these unstable economic times how can consumers protect themselves before making a purchase or signing up to a contract?

The Legal Jargon

The company may have gone into liquidation, receivership or may still be trading while being under examinership or administration as its known in the UK. In any of these situations you as a consumer are now an 'unsecured creditor'. You should contact the company looking after the winding-up of the business in order to register as such. All 'secured creditors' such as banks with secured loans will be reimbursed first. Only if there is money left over will you be reimbursed, and to be honest, this may not happen.

Glossary of Terms: What do they mean?

An examiner is appointed by the court to examine the situation 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. In this instance unless a remedy is found for the financial difficulties of the company, the next step is often liquidation. (Administration is the UK's version of examinership.)

A receiver has the task of securing the assets of a company, usually due to an insertion in an agreement with a creditor. Typically, lending institutions avail of this mechanism to secure large loans. The status of consumers in a receivership is similar to that in an examinership, with the same applying regarding the likelihood of a subsequent liquidation.

A liquidator has the task of winding-up a company, assessing the company's assets and distributing those assets in accordance with law. In such cases, unsecured creditors such as consumer 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.

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 can a consumer do to avoid the worst
. Pay a deposit rather than the full amount in advance so that you have less to loose if the retailer closes down. You should also think carefully about buying the product if the delivery time is very long, as this exposes you to more risk

. Get the trader to guarantee a delivery date in writing. If the delivery doesn't take place re-negotiate a new delivery time but if this is not met, get your deposit back. You don't want to be waiting too long as this leaves you exposed, and you don't want to be in that position if the store goes bust.

. If you are moving house and have bought a sofa, for example, you may have asked the store to hold it for you, even though you've paid for it. Given the current climate you should take your sofa and find another way of storing it.

. When your goods are delivered check immediately that they're what you ordered and that they're not faulty. If you need to return the item and the new delivery will take some time, decide if you want a refund instead, rather than risk the wait.

. While the retailer is always responsible for your faulty goods, if the retailer is now gone, contact the manufacturer of the product to see if they can assist. If you have a manufacturer's guarantee all the better.

. If possible you should pay by credit or debit card. This is because you may be able to claim a refund under the bank's 'chargeback' process if the retailer has closed down and you have lost your deposit, for example. Check with your bank for details. Usually there is a time frame in which you have to contact the bank and you will need to provide them with proof of purchase. You should still register with the administrator or liquidator of the company that has gone bust and the bank will need to see evidence that you have tried to gain a refund this way first. Your bank will be aware of the company's status so don't worry about that.

Actual situations
Land of Leather went into administration on 12th January and if you were a customer of one of the 11 Irish stores, the UK based liquidators Deloitte LLP advise the following, "if you were given a scheduled delivery date or have been advised that goods are awaiting payment of the balance before delivery can be made, these deliveries and orders will all be fulfilled".
A provisional liquidator for Zaavi, the chain of DVD and CD stores in Ireland was appointed in early January. You may have a gift voucher or a faulty product from the store. If you have a voucher bought between 27th November and 4th December you should contact the provisional liquidator (Ernst & Young) as you may be entitled to a refund if funds are available. If you have a faulty product and have a manufacturers warrantee then you should use that, but if you have a faulty product bought after 30th December you can exchange it for another product or you can get a cash refund.
Useful website
You can get information on the liquidator/examiner/receiver for the company by contacting the Companies Registration Office (CRO) at

Tina Leonard