Consumer rights when a company goes bust

Posted on May 2, 2017 by Private: Emma Wolfenden   |   Categories: Commercial & Business Law

Fashion and home furnishing company Laura Ashley was placed in administration in January 2016, electronics magnate Dick Smith went into receivership the same month, fashion retailers Marcs and David Lawrence were placed into voluntary administration in February 2017, and childrenswear retailer Pumpkin Patch is currently in receivership, with its last remaining store fronts to close sometime in March 2017.

There is a lot happening in the retail sector at the moment, and it seems almost every other week another company falls victim to declining sales and sky-rocketing debt.

But where do consumers stand when these popular brands are in financial distress?

Consumers will be affected by the appointment of an external administrator and may become an ‘unsecured creditor’ if they have:

  • Paid in full for goods or services to be collected or delivered later
  • Paid a deposit, such as in a layby agreement or interest-free offer
  • Bought a gift card or a voucher and not used it
  • Returned a product and issued a credit note

The Corporations Act 2001 (Cth) determines the order in which creditors are repaid money. Consumers will generally be considered to be ordinary unsecured creditors, which will mean they are at the bottom of a, usually, very long list of unsecured creditors.

 

If the Company is still trading

During a period of external administration, companies often continue trading for a time, under the control of the external administrator. If the external administrator has announced that the company will honour specific orders or transactions – for example, gift cards – you should follow the directions given by the administrator, as quickly as possible. A recent example is in the case of Pumpkin Patch’s receivership, where it was announced that gift cards would be honoured on a ‘dollar for dollar’ basis – a $40 purchase could be made using a $20 gift voucher and $20 cash.

 

If the Company is no longer trading

If the company ceases trading, consumers will need to register with the external administrator as an ordinary unsecured creditor to recover their money. The insolvency process will determine whether consumers receive the goods paid for, a full or partial refund, or potentially nothing.

 

In addition, consumers who have paid for goods that have not been received using a credit or debit card, may have chargeback rights that enables them to obtain a refund from their card issuer. The Australian Competition and Consumer Commission recommends that those consumers contact their card issuer straight away, as there are generally conditions and time limits on making a chargeback claim.