Discussion - Receivership / Bankruptcy

  tbh72 12:09 14 Mar 2004

I would be interested to hear people's views regarding the aforementioned. I find the process confusing to say the least.

My personal view is that without "Customers" businesses would not exist, so why is it that "Customers" are alway's the last on the creditors list......

Feel free to add your own comments & views.

  spuds 12:28 14 Mar 2004

Receivership's/Bankruptcies/Administration is a very complex issue. I delved into this mystery world when Tempo went bust,and when I was also left with two other companies problems, as they went into administration, as I was very concerned as to some of the issues that effected me and other people. My investigations even involved my local MP and the various government and legal departments. There are ongoing discussions regarding the way creditors are divided, and one consideration is the way the small guy is last on the list, so perhaps this time next year, the small guy may have a better chance of re-address and reimbursement.

  GANDALF <|:-)> 14:41 14 Mar 2004

There is little point in discussing it...people can whine, moan, probe and discuss it until the next moon landing but the first people to get paid are the DSS/ IRS/ and banks, this is the law and will be so until changed. Ifa company has gone bankrupt it is usually because there is naff all cash about so the discussion about allocating assets is really academic. Customers come last.

Moral of the story is pay by credit card and it increases your chances of being paid after a crash, or buy from a high street shop (PCW, Comet etc.) and you get your maulers on the goods straight away........end of story.



  Forum Editor 14:59 14 Mar 2004

are classed as "preferential creditors" because they should be - they had no choice but to allow a business credit for business community charges and VAT, whereas customers did have a choice, they could exercise judgement when deciding to make a purchase from a particular company.

That's the basic rationale - or to be more precise, part of it - but it's obviously a good deal more complex than that. Successive governments have looked at the question of providing more protection for the small, individual creditor, but of course everything comes at a price - and no minister wants the responsibility for introducing legislation that means less money flows to the public exchequer.

In truth it's horrendously complex, and there are some massive problems to solve before things get any better. It will no doubt happen in the future, but to what extent and when is anyone's guess.

  computernerdiamnot 15:17 14 Mar 2004

Pay for your goods by credit card not by SWITCH I.E DEBIT CARD. By rights the credit card supplier will forefit the loss as you have not recieved the goods so you cannot be charged for it as the company selling the goods should not charge for it untill they have shipped the goods.

  tbh72 15:28 14 Mar 2004

"Preferential creditors" - When you put it like that FE it's clear why payment is made to them first.

As suggested, consumers should use credit cards to protect their interests.

This is making interesting reading, I look forward to reading more replies as they are added.


  pj123 16:32 14 Mar 2004

Most "Preferential Creditors" are insured for this sort of problem. The likes of you and me, ordinary customers are not. To a Preferential Creditor £500 is not a lot but to me it is. I agree using a credit card will cover but I don't have a credit card as I believe if I don't have the money, I can't afford it. So, having saved up to buy something only to lose it is a big blow. How many insurance companies out there will offer insurance against this, and for what premium?

  GANDALF <|:-)> 18:02 14 Mar 2004

' agree using a credit card will cover but I don't have a credit card as I believe if I don't have the money, I can't afford it'...bit of a narrow minded view. I have a credit card and pay it off in full each month. You can get a credit card easily.

'So, having saved up to buy something only to lose it is a big blow'...you can buy from a shop.

'How many insurance companies out there will offer insurance against this'...none, but the credit card companies do.


  Forum Editor 18:09 14 Mar 2004

would be an expensive exercise wouldn't it? How would an insurer calculate the risks? How would anyone be able to guess the likelyhood of you or I making a purchase from a company that is about to go belly up?

To say "To a Preferential Creditor £500 is not a lot" is to fail to understand the nature of the problem. If said creditor happens to be the local authority (and it often is) then the money will be lost to the local community - money that provides old people's day centres, community care schemes, etc. Make that £500 into a realistic £5000 and multiply it by a few hundred and you might have an idea of the size of the losses accruing to a local authority within the course of the year from failed businesses.

Likewise the losses from outstanding VAT when businesses collapse - that amounts to tens of millions nationally, and it's a loss to the public purse unless it's recovered by making the Customs & Excise into a preferential creditor. They don't get all their money anyway.

Like I said, it's a nightmare problem, and I do believe that some form of protection should be afforded to the individual purchaser, but how, and with what money? We already have a pretty good scheme in place with the protection that buying with a credit card provides. In future you are going to be increasingly penalised if you don't use a credit card - I know of one client of mine who recently tried to book into a hotel in the American Mid-West. When asked for her credit card she said that she would pay cash, to which the reply was "not in this hotel you won't - no credit card, no room". I travel to the far east quite often, and no decent hotel in either Hong Kong or Singapore would take you without a card. Like it or not, plastic is safer, faster, and more convenient, and if you think that people who use cards do so because they don't have the money to pay outright you're badly out of touch with how it all works. Using a card makes good financial sense - so long as you repay your balance within the allotted time.

First of all, there have been recent ammendments concerning "Preferential Creditors" and the Crown (Customs & Excise, Social Security and, more importantly, Inland Revenue) now cease to be a "preferential Creditor" in the distribution of assets upon insolvency (See Sch 6 Insolvency Act 1986, ammended by s. 251 Enterprise Act 2002 in force 15th September 2003)

The reason for "Preferential Creditors" is simple, without such Banks and other sources of finance together with suppliers would not want to provide credit if there was a chance the debtor would become insolvent and the creditor left to recieve a divident of the assets left (The pari passu principle whereby the sum total of assets is divided amoung all the creditors resulting in so many pence in each £ of debt being paid - if any) So, such things as charges, mortgages and the like all all designed to prevent the property becomming part of the overall assets of the firm. Charges rank in priority to all other debts so as to ensure that credit is able to be secured, after all, unsecured credit is also a lot more expensive and would result in extra cost to the consumer - us!

There is however a way to ensure that any money you pay to a supplier NEVER becomes part of his assets and therefore you a creditor and subject to the parri passu rule - create a trust.

A Trust transfers the legal ownership of the "property" (And Money is property for this purpose) whilst creating a beneficial interest in another person - you. Trusts are subject to the rules of equity and whenever equity and the law conflict equity will prevail. Therefore the courts will apply the equitable principle and give effect to the trust in your favour in effect making you a preferential creditor (well, in effect as you are not a "creditor" - your money is simply being held in trust on your behalf until some act by the supplier terminates the trust - such as him appropriating the goods to your order or dispatching them to you).

To create such a trust all you have to do is to state on the order (even verbally on the telephone) that the money you are paying is to be held on trust for your benefit untill such time as the contact is performed. - That is it, as simple as that and in the event of the company becomming insolvent you will receive your entire payment back without any deduction whatsoever.

This has recieved judicial endorsement in the Court of Appeal (Re Kayford Ltd [1975] 1 All ER 604) where Megarry J stated

"No doubt the general rule is that if you send money to a company for goods which are not delivered, you are merely a creditor of the company unless a trust has been created. The sender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money"

So, to avoid doubt always tell the company that a condition of accepting the order is that the funds will be held on trust for you pending dispatch of your goods!

The changes I mention above (The Enterprise Act 2002) are as a result of Europe acknowledging the fact that a preferential creditor (one with a charge securing his credit) may appoint an administrator at will and cause the collapse of the company with the net result that the consumer looses out. A preferential creditor (not the Crown) automatically "looses" 10% of his credit (the amount outstanding to him) which is left in the "pot" for unsecured creditors.

There is also now strict rules about how and when a creditor can appoint an administrative reciever and realise assets subject to a charge - the whole imputus of the act being to encourage a "rescue" culture and to take all steps necessacy to prevent insolvency.

It may not be total consumer protection but it is a step in the right direction and if you take Megarry's advice and create a trust you are protected anyway.

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