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Cents & Sensibility: Insolvency

With economic uncertainty out there, consumers should be wary of long delivery times - a lot can happen between paying over the cash and the delivery van finally showing up with the goods.

More than 1,000 companies went bust in Ireland in the eight months between January and August this year. That's up from 889 in the same period last year and only 417 in 2008. Of course, it's tough on those who lose their jobs, but often consumers are forced to take a share of the pain.

When Jim Langan Furniture went belly up last year, around 2,000 customers lost about €1m in deposits. When a company gets into serious financial difficulties, stakeholders either don't get paid or don't get what they've paid for -- that's everyone from employees to suppliers, banks to consumers. These stakeholders fall into one of three categories: preferential creditors are first in line, including the taxman and employees who are owed wages. Next are the secured creditors, which are almost always the banks that advanced loans to the business. Finally, we have unsecured creditors, the company's customers, who get whatever is left after the first two have taken their share, and often there's very little left.

Consumers are vulnerable in three ways when a company goes bust: firstly, if they've paid in full for a product yet to be collected or delivered; secondly, if they've paid a deposit to secure an item and thirdly, if they're holding gift vouchers or credit notes.

LIQUIDATION

A liquidator is appointed to wind up the company, sell off its assets and distributes the proceeds to anyone that the company owes money to. If you've paid for a sofa but the company goes out of business before it arrives, you are now an unsecured creditor. So usually, you end up with neither the sofa, nor any hope of getting your cash back.

EXAMINERSHIP

The consumer has no control over what happens when a company ceases trading. If it goes into liquidation, you will probably get little or nothing. If the company goes into examinership, the future may look a little brighter. An examiner is appointed by the court to assess the company's prospects. The company itself usually trades through this period. The process warns consumers that the company has issues, and unless these can be sorted, liquidation is likely. So speed is of the essence here. Get out and redeem your goods or spend your vouchers.

In the UK, the examinership stage is called administration. There are a number of differences between the two, but the impact for the consumer is pretty much the same.

RECEIVERSHIP

When a company goes into receivership, a similar situation arises. Often, if a company gets a big loan from the bank, they give the bank the right to appoint a receiver if they can no longer service the loan. When that happens, the bank sends in a receiver to try and secure what they're owed.

In this case, the company may continue to trade, but it may also begin the process of winding down. If it's a chain of stores, some may keep going while the less viable ones are shut down. Consumers may have a window in which to close their dealings with the company before the cake is divided up. But even if the company does limp on, any vouchers or credit notes you hold may not be honoured because, again, you're just an unsecured creditor.

YOUR OPTIONS

The National Consumer Agency suggests a number of alternatives for consumers who want to protect themselves against a backdrop of spiralling retailer insolvency. Put the purchase on your card.

Many card issuers, both laser and credit, operate chargeback schemes -- many of Jim Langan's unsecured creditors managed to salvage something from the crisis because their purchase went on plastic.

DELIVERY

If you have to arrange delivery, avoid long lead times at all costs. Once you're happy with the timeframe suggested by the retailer, ask them to put it in writing before you pay anything over. If the goods don't show up within that timeframe, go back and arrange another -- final -- delivery time, and if they miss this deadline, get your deposit back.

If the delivery time is particularly long, think hard before you hand over your cash, and never pay the full amount.

Don't ask them to hold things for you either. In a house-buying or building situation, retailers often store paid-for goods for consumers who are in the process of moving. It's handy, but no longer wise. Squeeze it in at home or put it in storage. It's also a good idea to give the goods the once over as soon as you take delivery -- don't leave it in the wrapping for six months before discovering that the sofa is yellow and not the green one you ordered.

VOUCHERS

If you're a gift-voucher hoarder, it's time to hit the shops. Vouchers only tend to last a limited period anyway, and if the company goes belly up before you cash them in, they become nothing more than pretty pieces of paper.


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