Your rights if a business is sold, or put into receivership, liquidation or voluntary administration

In tough economic times, more businesses are closing their doors. Terms like receivership, voluntary administration and liquidation seem to be constantly hitting the headlines.

But what do these terms mean, and what rights do you have if you’re dealing with a business that’s gone bust? We explain the terms and your rights.

What does receivership mean?

Receivership happens when a bank or other secured creditor (like a finance company) that has lent a company money, sees that the company can no longer afford to pay the debt back.

The secured creditor will appoint a receiver to take control of the company’s business and recover their money (but not the money of any other creditors).

Sometimes the receiver will keep the business trading. But if the business is making a loss by trading, the receiver is likely to decide that continuing will only make matters worse – in which case, the company will be put into liquidation and its doors closed.

Can I contact the receiver?

Yes, if you want to know more details about the receivership you can contact them.

To find out who the receiver is, check online notices from the company or media, and public notices in major newspapers, or you could search the Companies Office Register.

If the company is in receivership and still trading, ask staff for the receiver’s contact details. If the receiver is court-appointed, the court can tell you how to contact them.

What does voluntary administration mean?

When a business is struggling to survive, its board of directors can choose to appoint a voluntary administrator to take charge. The administrator will review the business’ affairs and finances to see whether it can be saved.

Administration is intended to be a relatively short-term measure that freezes the company’s financial position while the best option for its future is worked out. During this time, creditors can't take back their goods, take legal action against the company, or take legal action against the directors under personal guarantees.

The administrator will present options and recommendations, which are then voted on by the creditors. Usually this requires the creditors to accept a compromise and to wait for at least some of their money. If the creditors don't like the rescue plan, or the company cannot be saved, it will be put into liquidation.

What does being put into liquidation mean?

This means it’s all over for the company. The company will be wound up, with its assets sold, debts recovered, and creditors paid some of what they’re owed.

Your rights when a business stops trading

Will I get my money back or receive the goods I ordered?

Customers are last in line to receive any money or goods when a business is put into liquidation.

There is a priority order for payouts.

1. Liquidator's fees and expenses.

2. Secured creditors: those who have loaned the company money using the company’s assets as security.

3. Preferential creditors: such as employees who are owed wages or holiday pay, and Inland Revenue when it is owed GST and PAYE.

4. Unsecured creditors: customers and other creditors who are owed money, goods or services, but who do not have a secured interest in the company’s assets. To pay for something before you receive it is, in effect, to make an unsecured loan.

If I’m owed money or goods, am I a creditor?

Customers who paid a deposit or paid in full for a product or service that hasn’t been delivered are unsecured creditors.

If a company that has your money is in voluntary administration, wait to see if it decides to trade its way out of difficulty. If it does reopen its doors, then you can either try to get your deposit back or pay the balance still owing and take possession of the goods as soon as possible.

If a company is in receivership or liquidation, there's usually not enough money to go around. This means you’ll probably get only a fraction of your money back, or nothing at all. You should still make a claim straight away with the liquidator, so that you’re in the queue. You'll need to fill in a creditor's claim form, which will be available from the liquidator.

If you paid for the product or service by credit or debit card, talk to your bank about a getting a chargeback, which is a refund to your card. There are time limits for chargebacks, so get in touch with your bank as soon as possible.

What if the business that’s gone bust has my stuff?

If the company has hold of a product that you've sent in for repair, you are entitled to get it back. You will have to identify the product – preferably with the serial number or another reliable method – and pay for any repairs done, assuming you were liable for the cost in the first place.

If you can't positively identify the goods you own, you will have to lodge a claim and hope for the best.

If you get your product back, but it hasn’t been fixed, you could try the manufacturer or distributor. If it’s quite a new product, it may be covered by a manufacturer’s guarantee. Even if it’s not, you may have the right to claim against the manufacturer or distributor under the Consumer Guarantees Act.

If those options don’t apply, ask the manufacturer to direct you to another repair company.

What if the business botched a repair on something I bought from them and now they’re out of business?

If the company has botched a repair job on something you own, you should put in a claim for the cost of the repair with the liquidator – you'll be treated as an unsecured creditor.

What if I have something on layby with the business that has gone bust?

There are specific rules about laybys in the Fair Trading Act for goods priced at $15,000 or less.

If you're paying something off on layby when the company stops trading, you have the right to complete paying off the item and collect it, as long as you're up to date with the payments and the item has been set aside for you. Try and do that as soon as you can.

If there aren’t enough goods to go around, priority goes to those who put them on layby first. And if they haven’t been set aside at all, you will become a preferential creditor.

Lots of businesses are going under – what can I do to protect my money?

Here’s our top tips for minimising your risk when you’re paying upfront for goods or services.

• If you’re required to pay a deposit, try to keep it low – about 10% – and always get a receipt. For some purpose-built goods, like kitchen joinery, you’ll have to pay a much higher deposit – usually around 40% to 50% of the contract price. In this situation, check out the business you’re dealing with before you pay. Be wary of companies that insist on an unusually large deposit, when that’s not industry standard. It can be a sign of cash-flow problems.

• If you can, pay by debit or credit card. That way, you may be able to request a chargeback form your bank if the business goes bust.

• If you leave goods to be repaired, label them with your name and address. Get a receipt, make sure you know where they are held and keep a record of serial numbers.

• For online shopping, stick to reputable sites. Check that the website lists its contact details and that it has a street address.

• Check out the Companies Register to see if a company is in receivership or liquidation.

• For information on insolvency, check out the New Zealand Insolvency and Trustee Service.

If a business has gone under, can the owner set up again straight after?

The director of a failed company must not be involved in a business with a similar name for 5 years after the failed company’s liquidation. If a director does this, they'll be personally liable for the new company’s debts while it trades under the unacceptable name. They may also face fines and imprisonment.

What if a business just decides to close its doors

If a business wants to stop trading, there's no reason why it shouldn't.

Just because a business has been trading for a long time, or is well known, doesn't oblige it to stick around forever.

It can be disappointing if your favourite coffee house shuts up shop, or your insurance company stops offering cover, but that's life. There is very little you can do about it.

However, you do have some rights if the goods you bought from the business are not up to scratch or you have a contract with the business,

• If you have a faulty product and the manufacturer stops trading, go to the retailer. They are the ‘supplier’ in terms of the Consumer Guarantees Act, so have an obligation to help you.

• If you have a faulty product and the retailer stops trading, go to the manufacturer. Manufacturers also have obligations under the Consumer Guarantees Act.

• If you have a contract with a business, the business must fulfil its part of the contract. For example, if you have a contract with a rubbish removal company to empty your household rubbish bin each week for a year, the company can’t just decide to stop operating halfway through the year and pocket your cash. Check the terms of your contract to see what compensation you’re entitled to.

• If a business owes you money, make sure you keep track of the contact details of the business owner. A limited liability company must clear its debts before it can be removed from the companies register.

What if a business has been sold?

If the new owners of a business have bought everything (including the business’ assets and liabilities), and the business is still running under the same name, you should be able to insist on them honouring the original owner’s Consumer Guarantees Act obligations and any unexpired gift vouchers you bought before the sale.

However, in some instances a business can be partially sold. A new owner might choose to buy the physical assets of a business, but not the financial liabilities. Often, when this happens, the new owners will trade under a new name.

The position in this situation is less clear in terms of your rights. We suggest you contact the new owners and discuss your problem with them. If they care about good customer service, they may help you out, but they’re not obliged to.