Some pretty high-profile names have bitten the dust in recent years, leaving loads of people in the lurch. It can come as a real shock when a big business goes bust, since a lot of us assume that the larger a business is, the less likely it is to collapse and the safer our money is.
The thing is, this isn’t necessarily the case. No business is too large to fail, and a perfect storm of problems can strike down even the biggest household names.
We’ve written on this issue before but, with with the collapse of Toys R Us and Maplin, now seems a good time to remind ourselves of our rights.
With that in mind, here’s some advice on what to do if you’re affected when a firm goes bust – and how you can avoid getting hit by problems in the future.
James Walker, founder of Resolver, says:
When it comes to businesses going bust, knowledge is the best protection a consumer can have. It’s absolutely vital that consumers know exactly where they stand when it comes to their rights – and that they stay informed about how businesses are doing. Consumers need to be able to act quickly when a business starts to sink, and keeping a close eye on the press is the best way to make sure they’re in a position to do so.
How do I get my money back when a business goes bust?
From airlines to retailers, recent years have seen plenty of huge businesses go bust. But what does ‘going bust’ actually mean? And, importantly, how can you get your money back or protect yourself if you’ve made a significant purchase?
What do I need to know?
It can be very confusing when a business sinks. As consumers, it’s difficult to know exactly where you stand – a common misconception is that you’ve got no rights at all when a business you deal with has gone bust. Fortunately, this often just isn’t the case.
A lot of the confusion stems from the fact that loads of very technical terms get thrown around when a firm closes up shop, but there’s no need to worry about these. You only really need to be concerned with acting quickly, since the longer you wait, the harder it can be to get your hard-earned cash back.
The first thing to do is to understand exactly what happens when a business goes into liquidation. Basically, all its assets are distributed out to the people it owes money to. This is known as being ‘wrapped-up’ and is a very bureaucratic procedure – it can take quite a while for the process to be completed. A business doesn’t have to file for liquidation – it can simply cease trading or be sold on. Alternatively, it can go into administration, which involves a people being brought on to keep the business afloat.
The question is, what does this mean for you? Well, if you’re unlucky and a firm goes bust owing you money, goods or services, you’ll be put in a queue with other people (known as creditors) owed by the business.
The bad news is that as a consumer, you’ll be put at the end of the queue of creditors, behind investors, insolvency fees and employees of the business. This means you’re effectively last in line for cash, and probably won’t get much by the time everyone else has been paid.
In some cases, businesses might make special arrangements to sort things out for customers who have gift cards, for example – more on this later.
Can I get my cash back?
In many cases, you may be able to get at least some of your cash back. This depends on a number of things, including how you’ve paid and the industry you’ve been dealing with.
The first step is to check whether you’ve got any statutory protection or not. If the business is in a regulated industry or is served by a trade body or industry-funded scheme like the Financial Services Compensation Scheme (FSCS) or ATOL (serving packaged holidays) you might be protected. If you’re hit by a firm going bust, Resolver will let you know who’s best to contact. Unfortunately, there isn’t currently a scheme in place to offer compensation to shoppers when a firm goes bust.
What if I paid by…
If you’ve paid for goods or services using a credit card, you’re in luck. There’s lots of statutory protection in place, including a law called the Consumer Credit Act that says you can claim back purchases made using a credit card that cost over £100 and less than £30,000 from your credit card provider. You don’t even need to have spent the whole amount on the card – if you made a deposit of £200 toward a £15,000 kitchen, for example, you’re still covered by the statutory protection. This is known as making a claim under ‘Section 75’. Credit providers aren’t too happy about this, as they can end up paying out significant amounts of cash for businesses that go bust. They may try to recall your payment first – which is just as good a result for you. Regardless, Section 75 is a good first port of call. If you need to know more about Section 75, the consumer rights champions at resolver.co.uk have an excellent guide.
It’s not a legal right, but debit card providers run a scheme called ‘chargeback’. This scheme means you might be able to ask them to recall your money if there’s a problem, depending on the service provider. You have to act quickly, though: it could be too late if a firm has already gone bust. You should always give the debit card provider a call to ask them to run a chargeback as soon as possible. Be careful with chargebacks, however – your bank may not always be able to get your money back. There’s normally a time limit on chargebacks, so you should file one as soon as possible if you’re considering doing so.
Electronic payment (like PayPal)?
If you’ve used an electronic money service like PayPal, you still have some rights. Most payment services have pretty solid protection schemes in place, so you can file a claim using the firm’s internal dispute resolution rules. You can always go to the Financial Ombudsman Service for free if you can’t get the matter sorted, but you can’t normally use Section 75 to claim back money spent through a third-party payment service. This is because it breaks the chain between the consumer, business and creditor.
Cash, cheque, or direct transfer?
While paying by cash, cheque or direct transfer is sometimes necessary, you most likely won’t have the right to recall your money if a firm goes bust. You should always be very wary of businesses that demand these types of payment, and you should definitely not pay if you can’t afford to lose your money.
Will my insurance cover me?
Unfortunately, the majority of insurance policies don’t cover firms going bust. This can come as a nasty shock to people who thought they’d be covered. We’ve also heard stories of insurers bouncing people back to their card providers. If you have a warranty or other insurance policy that does seem to cover bankruptcy, there’s no reason why you shouldn’t be able to give a claim through your insurance policy a go. Of course, you can’t get ‘double compensation’ – meaning you can’t get money from an insurance policy and a Section 75 claim (i.e. having your cake and eating it too).
Vouchers and gift cards
If you have vouchers leftover for a business that is in danger of going bust, you should spend them ASAP! If a firm goes bust, these vouchers should be considered money owed to you, and some firms that have gone in to administration have paid out. However, there’s no guarantee that all businesses will do this! In many cases, it’s cash in or lose out.
What happens with smaller firms?
If a smaller business has gone bust and isn’t covered by a regulatory scheme, you should get in touch with your local Trading Standards officer. You can normally find them in the local council offices, and they can let you know if there’s a wider problem. If they think there’s a cause for concern, they’ll investigate further.