Commissioner's Blog: Business closures on the rise
With Acting Commissioner for Consumer Protection David Hillyard
Consumer Protection has noticed that anytime there is a change in the economic climate there will be some business closures as a result. It is often difficult to spot telltale signs of financial distress but, as consumers, we need to be aware of the risks involved when paying for goods or services in advance; even the purchase of gift vouchers.
Business closures we have released advice about recently include:
- Azberg Pty Ltd trading as Global Plus Holidays in Northbridge, which shut leaving up to 40 customers potentially $150,000 out of pocket. Travellers who booked through the agency need to carry out their own checks on their flight, accommodation and travel insurance policy arrangements prior to travel.
- Gerry Gibbs Camera House in Cannington closing and going into liquidation. Customers who fully paid for purchases or repairs should have been able to collect their items. People who have paid deposits on purchases yet to be delivered become unsecured creditors and need to register with the liquidator Melsom Robson Chartered Accountants on 6242 0700 and wait to find out if they will get their money back.
A recent report (Dun & Bradstreet's Australian New and Failed Businesses analysis) showed that the number of business failures in Western Australia rose 22.9 per cent in the June quarter of 2016 compared to the same period last year.
As with the previously mentioned examples, the way a consumer is affected by a business closure will depend on whether debts can be paid. Owners of troubled businesses must make responsible decisions and seek professional advice about trading. In a number of cases business owners commit their heart and soul to running the business and can be blinded by the financial difficulties looming around them. Independent business, legal and financial advice is a must and could ultimately involve:
- external administration — continuing to trade under supervision of an administrator; or
- liquidation – trading ceases immediately and a liquidator will wind up the business and fairly distribute assets to creditors.
(In some cases a business may cease trading and there may not be enough money to appoint a liquidator. If the creditors are not prepared to pay the costs of a liquidator, consumers are often powerless to recover their debts without incurring more costs; it may not be financially viable considering the amount it will cost to pursue the matter versus what they are owed).
So, our golden rules are about making sure we all protect ourselves and not become exposed to too much risk. Paying large deposits is a huge risk, let alone paying everything ‘upfront’. Staging payments for work completed or goods delivered is often a more sensible approach.
As a backstop, credit card chargeback rights may provide a level of protection in the event of non-delivery of goods but if we have paid a small deposit and the balance upon delivery, any potential losses are minimised.
In the event of a business closure, consumers who have paid a deposit, been making lay-by payments, or are in possession of a gift voucher become ‘unsecured creditors’. They need to register with the administrator or the liquidator whose details will usually be available from ASIC / www.asic.gov.au. Alternatively, check with Consumer Protection on 1300 30 40 54 or email email@example.com.
In our experience, an unsecured creditor’s chances of getting anything back are often slim because you are generally last in line to be paid after employee wages, taxes and secured creditors such as banks. Going back to the camera shop and travel agency closures mentioned earlier, there are consumers who have paid the full amount for their goods and services. In the case of impending travel arrangements, if airline tickets have not been booked and paid for, the business wind up process will take far longer than the planned trip. It is a sobering thought that the once in a lifetime trip might have to be paid for AGAIN just to make it happen.
In the case of a warranty or guarantee claim against a product bought from a business that becomes insolvent, talk to the manufacturer directly. If they can’t or won’t help, come to Consumer Protection for assistance.