What happens if a trader or company closes down or goes out of business, and what you can do if they owe you money.
When a company or trader is closing down or has gone out of business, you could lose money if:
- you paid for something but it hasn't been delivered yet
- you paid a deposit on a product or service
- you put a product on layby
- you bought gift vouchers or gift cards
- a product you bought is faulty.
How it works
When a company or trader goes out of business, they might:
- close down completely
- sell their business to someone else
- be declared insolvent, eg bankruptcy or liquidation.
If a registered company goes into receivership, liquidation, or voluntary/statutory administration, it is no longer run by its owners. A receiver or liquidator works out who the business owes money to, and pays them back using any assets or money left in the business. Those owed money are called creditors.
If a sole trader goes bankrupt, an Official Assignee sells their assets to repay bankruptcy creditors.
As a customer, you're an unsecured creditor. Banks, employees and Inland Revenue are secured creditors, so get their money back before any customers.
Your rights depend on:
- what sort of sale it was, eg layby, gift voucher, something on order for delivery, credit sale
- if the business was a registered company, or a sole trader or partnership
- if the business has closed down or been sold to new owners.
Sold to new owners
Whether you can get money back depends on whether the new owners are willing to honour claims.
If the new owners did not buy the previous owner’s liabilities then, unless otherwise stated in the purchase agreement, they don’t have to:
- honour gift vouchers issued by the previous owner
- complete orders placed with the previous owner that have not yet been delivered
- repair faulty products sold by the previous owner.
Unused gift voucher or credit note
Receivers, liquidators and administrators don’t have to accept gift vouchers or credit notes. This is because both a gift voucher and a credit note are the previous owner’s responsibility. It is unlikely that you will get any money back.
Specific layby rules in the Fair Trading Act give you some protection, as long as:
- you have not missed a payment within the last three months
- the products are still there (if there is not enough of the item to go to everyone who had it on layby, priority goes to those who put it on layby first)
- the goods are priced $15,000 or less.
Claim your money back from the receiver, liquidator or administrator if the products are not on the business's premises. You have priority over other unsecured creditors for the amount you have already paid.
But if you missed any payments, you lose your rights under the Fair Trading Act. You probably won’t get your money back.
Laybys and buy now, pay later
Product on order or deposit paid
If it's a registered company, contact the receiver, liquidator or administrator to see if you can get your product or money back. You have a right to try to get your money back, but the business might not have any money left to pay you.
Bought on credit
If you still owe money on something you bought on credit, you still have to make your payments — finance on credit sales is usually through a finance company that is separate to the retailer. There is no risk you will lose your products because you already have them.
Faulty product or service
If the business is a registered company under administration, contact the receivers or administrators to claim your rights for faulty products or services under the Consumer Guarantees Act (CGA).
If not, claim under the manufacturer’s warranty or contact the manufacturer directly to make a claim under the CGA. However, your rights are more limited than with a supplier, and depend on the warranty.
You may have other rights under an extended warranty if you bought one. Contact the provider to find out.
Any faulty products in for repairs are still your property. You should get them back, even if they are not repaired.
If you bought faulty products on finance, talk to your lender. They are also responsible for the CGA's quality guarantees and have the same obligations as the seller.
If things go wrong
Contact the receiver, liquidator or administrator
If a company in receivership, liquidation or voluntary statutory administration owes you money, you can complete a claim form with the receiver or liquidator. Get in touch with them to register your claim quickly. You may need to provide evidence, eg receipts, serial numbers, bank statements, copies of vouchers or credit notes.
During the closing-down period, companies often continue trading under the control of the external administrator.
The external administrator might:
- decide to honour your claim if the company will be sold as a going concern, or the new owners may do so
- honour gift vouchers or laybys — if they do, follow the instructions on their website.
Contact the trader
If the business was not a registered company, then the trader is personally responsible for returning your money or products. You can try to claim your money or products back through the Disputes Tribunal or District Court.
If the trader declares bankruptcy, you’re unlikely to get anything back unless there are assets or money that can be paid to creditors. To make sure you get a dividend if funds are available, register a claim with the Insolvency and Trustee Service (ITS).
If the trader hasn’t declared bankruptcy, they may have entered into a Summary Instalment Order or a No Asset Procedure. Register a claim with ITS.
Claiming money you’re owed(external link) — Insolvency and Trustee Service
Contact your bank
If you paid for a product or service by credit card and it hasn’t been delivered, ask about a chargeback on the transaction. Banks have strict time limits for this.
If you bought on credit or have a warranty
Contact the lender if you bought on credit and either:
- the product is faulty or hasn’t been delivered
- the service is incomplete.
You can make a claim with the lender under the Consumer Guarantees Act.
If you bought an extended warranty, go to the company that provided the warranty for any faulty products or services (if they are separate to the seller).
If the manufacturer’s warranty is still current, talk to the manufacturer about faulty products or services.
Before you buy
To reduce your risk:
- Check delivery times for products on order. Avoid buying if it is too long.
- Only pay a small deposit.
- Pay by credit card for products on order. If they don't arrive, you can apply to your bank for a chargeback
- Buy gift vouchers that can be used at more than one business.
- For laybys, make a payment at least every three months — this ensures your legal rights. If the business has a closing down sale, pay off and collect your layby as soon as possible.
- Keep receipts and warranty documents to back up any claims you might need to make.
- Record the serial number and a description products you leave with a business for repair.
- Keep receipts and warranty documents to back up any claims you might need to make.
To check if a trader or business is in financial difficulty, or has a history of insolvency:
- Check the Companies Register for information. It can take up to 10 days to be updated.
- Look at public notices on the Insolvency and Trustee Service website.
Companies Register(external link) — Companies Office
Public notices(external link) — Insolvency and Trustee Service
Check insolvency registers before choosing someone to do a big job, eg home renovations. If these show multiple insolvencies, it's a good idea to choose someone else.
Example — Gift voucher not honoured
Francis buys a gift voucher for his mum from a popular electronics store as a Christmas present. In the new year it is announced that the store is closing and the receivers won’t honour any unused gift vouchers. It is unlikely Francis will get his money back.
Example — In need of repairs
Jenny buys a dryer from a retailer which later goes into receivership. The dryer starts to overheat and smell of burning. Jenny contacts the receivers of the store and they direct her to the manufacturer. She still has a current manufacturer’s warranty so she can claim repairs under the warranty from them.
Example — Paying off a layby
Xinhua has a jacket on layby at a clothing store and has been making regular payments. The owner advertises a closing down sale. Xinhua rushes in to make her last payment and pick up her jacket before the store closes. If she doesn’t, she could lose the money she has already paid towards it.