What rights do consumers have in a receivership and how you can protect yourself

Undertaking a large project like a kitchen renovation or building work can be costly and stressful. But when that company goes into receivership, what rights and protections do you have as a consumer over goods you’ve paid for? The Herald spoke with insolvency expert and PricewaterhouseCoopers partner John Fisk about what happens in a receivership and how consumers can protect themselves.

It’s been just over a week since premium kitchen and laundry appliance company Kitchen Things was tipped into receivership, leaving dozens of customers waiting to claim paid-for items amounting to tens of thousands of dollars.

“It’s a very unfortunate situation when a company goes into receivership and people are caught like this, particularly when they’re dealing with things like expensive items that affect their homes,” Fisk said.

Fisk said consumers buying high-priced items will often be asked to pay a deposit on goods that might have to be ordered.

“My view is if you can avoid it, don’t pay deposits. But the reality is sometimes you have to.”

He said the risk of paying a deposit – if the company falls into receivership or liquidation – is that that person will become an unsecured creditor.

The difference between being an unsecured and secured creditor, and therefore priority in getting repaid, often depends on terms of sale and when title passes.

“So, it’s bad news if you have paid a deposit and title to the goods is not passed to you,” Fisk said.

“If you’ve paid in full, and the goods are in the warehouse and someone’s stuck a label on the goods that you’ve purchased with your name on them, then in most cases you’ll be entitled to go and pick those goods up.

Fisk said there are several ways that consumers can protect themselves.

This includes putting money into a stakeholder’s account with a solicitor, if the transaction is large enough.

“[A consumer] can show [the seller] that they’ve got that money but it won’t be banked to you until you’ve actually delivered the goods,” Fisk said.

Another option is negotiating a payment plan, he said.

This is particularly effective if you’ve got different items arriving at different times, such as for a kitchen renovation or construction work.

“That’s quite a good way to ensure your supplier is still getting paid but you’re also seeing value that’s arrived at your place as the project is going on,” Fisk said.

“If you strike a lot of resistance, it can be a red flag. Sometimes there’s a bit of a warning sign there.

“If there’s absolutely no degree of flexibility and it just doesn’t feel quite right, then trust your instincts.”

Fisk said the last resort, and most common situation, is a chargeback with your bank.

“If you’re going to pay a deposit, don’t do it by bank transfer or with cash. Do it with your credit card,” he said.

“Depending on the terms of your credit card, a lot of them have the ability to reclaim if the goods aren’t supplied.

“That does give you an added level of protection if things go wrong.”

What happens in a receivership?

Fisk said a receivership usually happens when a business defaults under the loan arrangements that it has with a secured creditor, often a bank.

That gives a secured creditor the right to appoint a receiver.

“It’s the duty of the receiver to secure the assets, realise the assets and repay the secured creditor and the preferential creditors and then retire.

“During the receivership, all the directors’ powers are effectively suspended. They’re not removed from office but they can’t do anything and the receiver basically takes control.”

Fisk said the receiver will make a decision on whether the company will keep trading or close the doors and sell up its assets.

Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.