Proposed Changes to Consumer Deposits Treatment in Insolvency

A review undertaken by the Law Commission has made recommendations on the way consumer deposits and retail vouchers should be treated following the insolvency of a business. Stephen Lewis, Law Commissioner for commercial and common law said of getting a refund “it can be a hit-and-miss affair, and it’s often the most vulnerable consumers who lose out”.

The most controversial change suggested would involve consumers paying cash deposits of at least £250 being granted limited preferential status as creditors in an insolvency. This would mean their claims being paid out after employees’ preferential claims for wages and holiday pay but before secured lenders, ie. those holding floating charges. Andrew Tate, president of UK insolvency and restructuring trade body R3, has commented that “this would be the first major change to the order of priority of payments in insolvency proceedings in over a decade and may discourage lending to retailers”. He acknowledged that consumer rights need protecting but stressed that they should be balanced against those of creditors as a whole, explaining that “improving the position of one set of creditors could also make it more difficult to rescue businesses.

The review was undertaken following a string of high street insolvencies involving businesses holding large balances of deposits and with many pre-bought gift vouchers in circulation. However, the Law Commission has not recommended extending this protection to vouchers, instead urging the government to increase consumer awareness of the risks involved with purchasing them. Other recommendations include regulating Christmas saving companies and other such schemes that pose a particular risk to vulnerable customers (for example, the average Farepak saver lost £400 following its collapse) and improving information to consumers about obtaining a refund from their debit or credit card issuer through the ‘chargeback’ scheme.

If your personal finances have been negatively affected by these issues, a confidential discussion with an experienced and qualified specialist to talk through the range of options available may well be the best course of action. Please contact us if you would like an initial consultation, free of charge.