Over the past few tough years, many companies have sadly gone bust, including big names like Woolworths, MFI & Empire Direct.
This is a step-by-step guide to getting your money back from a company in administration.
In this guide
QQWhat is administration?
A It means an insolvency firm has been called in to run the company, and get what cash it can for creditors, by selling or utilising its assets. In theory, a business can be kept running as a 'going concern', but this is unlikely in the long term.
Most likely, the insolvency firm will simply collect any assets, try and sell what they can, and then distribute whatever cash remains to creditors. The cash is then dished out in order of priority, which usually works a bit like this:
Secured creditors.If the company borrowed money secured on property/assets.
Insolvency practitioners.After all, if they didn't get paid, they wouldn't do the job in the first place.
Employees. Redundancy pay and wages up to the value of £800.
QWill you get your money back?
A This depends on the company's exact situation, and how far along your transaction is. Yet nothing's guaranteed, which is why routes such as credit card protection, detailed below, are so important.
If a company's in administration, it means it can't provide your goods or services, and the management's no longer in control. Yet it doesn't necessarily mean it's closed down completely.
The administrator's job's to maximise the value from selling off the company, and if keeping it as a going concern in order to sell it does that, then it'll keep trading. That may mean you can simply get a refund or the product, as normal.
Otherwise to be in with a chance of getting your cash, you'll have to apply to the administrator, not the company, and any cash left after paying the secured creditors and staff'll be split between everyone who's submitted a claim.
Q Did you pay by credit card?
A If what you purchased cost £100 or more, and you paid all, or even just the deposit, by credit card, then your credit card company is equally liable under Section 75 of the Consumer Credit Act.
In other words, whatever the rights you'd have had with the retailer/company, you have with the credit card company, so you can get your money back from it.
This is a legal protection that credit card companies have no choice about, as when you spend on a credit card, you're entering into an arrangement to borrow (even if you pay off in full), so you get these rights.
If you suffered losses as a result of the administration, eg, you had a half finished kitchen and needed to pay extra to get it finished, you may be able to claim this from the card company too.
For full details on this, including free template letters to reclaim from the card company, read the Section 75 guide.
However, it's important to note, the £100 is for a single item. Even if you ordered ten £90 kitchen stools, while the total order is £900, it might not count. In these cases, give section 75 a go but if it can't help you, read on.
Q What about using Chargeback?
A If you paid with a Visa or Maestro debit card for any amount, or Visa or Mastercard credit card for goods under £100, there's another step to try. It's called the Chargeback system, where your bank gets cash back from the company's payment processing bank.
Unlike with credit cards, this isn't a legal protection, but a protection from firms internal rules. It's designed so that if you pay for something, and that order isn't fulfilled or a mistake is made, your bank can do a Chargeback from the bank that collected the payment. It's valid on:
You must do this within 120 days
The rules state you must complain within 120 days of realising there's a problem (not from the date of the transaction). This means if you're not able to start a Chargeback immediately, it's very important to diarise the day you heard there was a problem, to ensure you start your claim before the deadline.
Read more about Chargeback.
QDid you pay in any other way? e.g. cash or cheque
A This is where it gets tough. You don't have any protection when paying by cash or cheque; though do remember even if you only paid a penny on a credit card, if the goods are over £100, you're covered.
If you paid by another type of debit card, you can try asking your bank for something similar to Chargeback described above, but banks and building societies are not legally obliged to help, so it's much less likely to work.
Sometimes the company sets up specific procedures, otherwise your best route's to apply to the administrator for a refund, by adding your name to the list of creditors. Be prepared that it's not likely to yield much, maybe 10% back at best.
Many of the techniques in this guide are tried and tested, because of the administration of a company called Farepak in Oct 06. If you have time, it's worth reading through some of the Farepak discussion, to see some of the Farepack victims' success stories, and how to coordinate your complaint. You could also report your administration stories for others to learn from.
QCan this happen to any company?
A In a word, yes. 2006 saw the collapse of Christmas savings scheme Farepak, which affected hundreds of thousands of people putting money aside for the festive season. In 2007, a host of mobile phone cashback sites succumbed to their own poor business models, leaving thousands of people locked in lengthy contracts they could ill afford.
2008 brought the demise of wedding gift service Wrapit, leaving newly weds without gifts and their guests out of pocket, and transatlantic airlines Zoom and XL ceased flights, causing many people to be stranded across the other side of the Atlantic.
Even if an economy is recovering, there's no way to know whether this will happen to any company next. so the best way to make sure you're protected is to do all bigger spending on your credit card, in order to get Section 75 protection. Just be sure to pay off the debt in full at the end of the month, to ensure you're not charged interest.
Read the Recession Proofing guide for further ways to protect yourself during the recession.
The other resource is other customers in the same boat, so please report any updates and information in the administration discussion in the forum.
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QHas your holiday company gone bust?
A If you purchased a holiday as part of a package with an ATOL protected travel agent (a financial protection scheme that tour operators can sign up to), you're covered for any part of the holiday where a company you're dealing with goes bust, be it flights, hotel or car hire.
In this situation, contact your travel company asap to organise travel or accommodation; thankfully the company's also responsible for any additional costs, so you won't be out of pocket. Use ATOL's search facility to check if your tour operator's ATOL protected.
However, it's crucial to understand that DIY holidays, where you book all the elements yourself separately (ie, flight, hotel, transfers), do NOT get any cover from ATOL. The only way to get any level of protection is via the Section 75 route above, so try and make sure you use a credit card for some of the cost - read the Section 75 guide.
Most travel insurance policies WON'T cover companies going bust, unless you specifically requested it and the provider agreed to include it. For the few that do read the 'Scheduled airline failure cover' section in the Travel Insurance guide. Yet, it is also worth giving your policy provider a call to double check exactly where you stand.
Q Are faulty goods and services affected?
A If goods or services purchased from a company that goes into administration become faulty in any way, you still have rights.
Generally these are what I call the “Sad Fart” rights from the Sale of Goods Act 1979. That's because they must be Satisfactory quality, As Described, Fit for purpose And last a Reasonable length of Time. For more details on your statutory shopping rights, see the Consumer Rights guide.
It's here that the section 75 rule above really comes into its own, if you have paid by credit card. That's because you have exactly the same rights with a credit card as with the retailer, which includes a breach of your statutory rights as well as administration, so you can ask it for a refund along the same lines. If you bought on a debit card or it was for under £100, it's also worth trying Chargeback procedures.
Again, those paying in any other way will find this harder, but you can also make a claim to the administrators. If it doesn't agree to pay you, you'll simply join the queue of creditors, and your chances of getting any cash are slim.