The initial payment of a deposit assures that a consumer has entered into an agreement to purchase products or services and that those products or services will be fulfilled as agreed. But if the business goes bust and enters company liquidation before it can provide its products or services, can the customer recover their deposit money, or is it gone forever? Knowing how customer deposits in liquidation work can make a big difference for both consumers and businesses navigating this difficult period.
Customer Deposits In Liquidation
When a company enters into liquidation, a liquidator takes over control of the company’s operations, sells off the company’s assets and then pays out what remains of the sales proceeds to the company’s creditors based on their respective legal priorities for payment.
Customer deposits in liquidation do not provide an automatic right to obtain a full or partial refund. Consumers who wish to pursue reimbursement will typically be required to claim against the company as an unsecured creditor for the amount due.
Generally speaking, consumers who have outstanding deposit claims against a company will fall into the category of “unsecured creditors”. Unsecured creditors’ claims will take precedence after the interests of secured creditors, which may result in consumers receiving little or none of their deposit money. If the money remaining to pay off creditors is less than the total debts owed to creditors, many consumers will not receive any of their deposit money back.
Will I Be Able To Get My Deposit Back?
While obtaining a deposit back from a business in company liquidation can be challenging, consumers may still have options.
File a Claim with the Liquidator
Consumers should initially contact the appointed liquidator or insolvency practitioner to outline how much money they believe they are owed. Depending on the case, consumers may need to complete a proof of debt document and provide supporting documentation such as receipts, invoices, confirmation letters and copies of payment records.
Repayment amounts will depend on the funds available and where the consumer falls within the creditor hierarchy.
Contact Your Bank or Credit Card Provider
Consumers who paid using a credit card may be eligible to file a claim for reimbursement pursuant to Section 75 of the Consumer Credit Act 1974, provided that all applicable conditions are met. Generally speaking, Section 75 protection applies to transactions totalling more than £100 but no greater than £30,000.
Debit card holders may also be able to initiate a chargeback with their bank, subject to compliance with the applicable rules and timelines established by the chargeback scheme.
Verify Additional Protections
There may be additional protections available depending on how the transaction was made. It would be advisable for consumers to seek advice promptly to determine which options could apply to customer deposits in liquidation.
What Should Businesses Do To Protect Their Customers?
For businesses facing financial challenges, deposits from customers can add another layer of complexity. Deposits taken by a business before it enters insolvency proceedings are not necessarily funds that can simply be returned once company liquidation occurs because those monies may already have been used to cover operational expenses.
As early as possible, directors should consult with experienced professionals in the area of insolvency as they assess potential liabilities, outstanding orders and available cash flow to help guide decisions regarding subsequent actions.
To facilitate smoother transition processes if insolvency proceedings occur, businesses should maintain detailed accounting records and draft comprehensive customer contracts to clearly define outstanding obligations.
Seeking Advice From An Experienced Insolvency Practitioner Can Help
Customer deposits in liquidation can be a major issue for businesses experiencing financial hardship. Ultimately, whether a consumer recovers any portion of their deposit money depends on the specifics of the company liquidation proceedings, the company’s available assets and liabilities, and any applicable rights afforded to individual consumers. You can get in touch with us today for advice specific to your particular situation.
