In extraordinary times such as during the pandemic, our rights as consumers can be put to the test. We're entitled to what we paid for, but if a business goes under it may not have the means to settle debts.
Gift cards, gift certificates and even upfront reservation deposits, for instance, may become worthless if the business no longer exists. But it's still worth trying to get your money back.
For unsecured creditors such as customers, though, it will probably take a while. As receivers focus on recouping outstanding debt for the company's secured creditors, especially banks, shoppers do have some rights.
Some of the more prominent business collapses of recent years serve as a guideline for what happens when a business shuts down.
When Aussie mobile retailer Allphones went into voluntary administration in 2018, customers who'd shopped there shortly before and wanted to return goods for a refund – or who bought items on layby – were not high priority.
A similar situation arose in 2010 when electrical and whitegoods retailer Clive Peeters was believed to owe a total of about $70m to about 1500 secured and unsecured creditors.
If nothing can be done for the company, the administrators will try to get the best outcomes for the people or groups to whom it owes money – the creditors
And more recently Dick Smith customers were left in the lurch. So what did all this mean for those customers who hadn't yet laid hands on what they'd paid for?
When a company goes into voluntary administration, it appoints an external administrator to help plan what steps need to be taken.
If nothing can be done for the company, the administrators will try to get the best outcomes for the people or groups to whom it owes money – the creditors.
If you've paid for goods that you haven't yet received and the company goes under, the way you paid for the goods has big implications for whether or not you may get your money back.
Credit or debit card
Customers who buy goods with a credit card, or certain debit cards, are generally better protected than those who pay by cash. If you have used a credit card to pay for goods in full and haven't received them, you may have a case for chargeback.
On behalf of the customer, the card issuer will seek a refund from the bank of the folded company. The right of chargeback also applies to debit card customers who chose the 'credit' option at the time of purchase.
Time limits for chargeback apply and vary between financial institutions, so it's important to contact your bank or credit union as soon as possible
While paying on EFTPOS may reduce or eliminate any fees you pay, it can compromise your safety net if the retailer you have purchased from goes under.
Time limits for chargeback apply and vary between financial institutions, so it's important to contact your bank or credit union as soon as possible.
Cash, cheque or savings card
The only option available to customers who paid with cash or a cheque, or who used a debit card and chose either the cheque or savings option at time of purchase, is to wait for the outcome of the administration process.
Failing businesses can leave behind a long line of unhappy customers.
If you have unused gift cards or credit notes, or are paying off products through a layby agreement or an interest-free deal, you are an unsecured creditor and must register your details and wait for the outcome of the administration process.
In the Dick Smith case, people who bought gift cards before the collapse – and plenty apparently did – had another option: both Coles and Woolworths agreed to exchange Dick Smith cards bought at their stores with a Coles or Woolies gift card of equal value.
In our 2016 submission to the senate economics committee regarding the consumer consequences of business collapses, CHOICE made a number of recommendations to protect gift card holders better, including being able to cash out gift cards with balances under $10, having gift card funds stored in a trust account, and having the details of gift card holders stored online to help administrators reimburse them.
We made the case that gift cards from a failed business that's been bought out by another business should be honoured by the new business
We also made the case that gift cards from a failed business that's been bought out by another business should be honoured by the new business and that gift cards should be honoured when a business continues to trade while under administration.
(The committee ceased to exist after the general election in July 2016 and the matter was not referred to the new parliament.)
It's also important to know that the failed business may pass on your personal details to the new one, although administrators would be required by law to get your consent.
In the Dick Smith case, the electronic retailer Kogan set a deadline for Dick Smith customers to opt out of having their details transferred over to Kogan, which took over what was left of Dick Smith. Notably, Kogan didn't accept Dick Smith gift cards after Dick Smith went bust.
CHOICE has long advocated for better consumer protections with gift cards, especially when the card provider goes bust and leaves cardholders in the lurch.
You may be able to claim warranty on products bought after the business goes under, provided it's from the manufacturer.
Consumers are generally treated as unsecured creditors – which means you'll only be paid once employees and secured creditors have been repaid. To get your money back, you'll need to register with the external administrator as a creditor.
You can do this by completing a "proof of debt" form, which you can get from the voluntary administrator. This is usually done to notify the voluntary administrator of your claim and enable you to vote at creditor meetings.
The insolvency process will determine whether you receive the goods you've paid for, a full or partial refund – or potentially nothing at all.
Stock images: Getty, unless otherwise stated.