Consumer credit, loans and debt

If you have paid money in advance or put down a deposit for goods and later find you can no longer contact the seller because the telephone is disconnected, or when you have gone back to the shop to complain you find the premises closed and locked, you may be dealing with a company which has ceased trading because it is insolvent; that is, it has no money to carry on business. The Insolvency Act 1986 lays down the legal framework for all such insolvencies and there are two separate types you may have to deal with:

1. Individuals running a business as a sole trader or partnerships, who may become bankrupt or have an IVA (individual voluntary agreement) which is an alternative to bankruptcy.
2. Companies which may go into liquidation. 

Not every insolvent trader is made bankrupt or goes into liquidation. There are different stages to the process and other legal arrangements can be made. Some companies may also cease to trade without being insolvent. However, when it does happen, you may lose your money or not get work finished or goods delivered. The situation is likely to be uncertain for quite a long time. If you have paid for goods or services or have a claim for faulty goods, or if you have supplied goods or services to the company, you will be called an 'unsecured creditor' and come at the end of the line for payment. This means you will only get something back if there is money left after all the expenses of winding up the company have been met and certain creditors such as government departments, called 'preferential creditors', have been paid. When you first find out that the company is not trading, you may have very few facts. You will need to write to the trader, at the business address and the registered address if it is different (you may be able to find this using the search function at Companies House website) even if the premises are empty, to notify them of your claim and exactly what you believe you are entitled to. Keep a copy. Ask around locally for information and if you find out who the trader's solicitor or accountant is, contact them too as they may be able to tell you what is happening.

• It is not always easy to find out whether insolvency procedures have been started. You can ask the local official receiver's office, check the local press and the London Gazette for notices and ask the county court if proceedings have been started. 
• The vital information you need is whether the official receiver is dealing with the matter or an insolvency practitioner, and their name and address so you can write to make a claim.
• Records of company liquidations are held at Companies House, Cardiff. The list of disqualified directors is also held there.
• Records of individual insolvencies are held by the Individual Insolvency Register. You can also search the register in person at the local official receiver's office.

Companies

There is likely to be a delay before anything happens but there should be a notice in the press, locally if it is a local trader and in the London Gazette, giving information about the current situation together with details about a creditors' meeting. All creditors can go, and you should go if you can. At the meeting, an insolvency practitioner or administrative receiver may be appointed.

A receiver does not wind up the company but is appointed to collect money owed to the company or to raise money from the company to pay the creditors. A receiver may trade in the company's name, sell assets, sell the company or make other arrangements. If these fail to save the company a liquidator is appointed who is a licensed insolvency practitioner.

Liquidation

The insolvency practitioner takes over full responsibility for winding up the company, selling assets, dealing with claims and making all other arrangements. A consumer who is owed money or has any claim must write to the liquidator. Your claim is against the limited company not against the individual directors, so you will get no money if the company has no assets.

Sole traders bankruptcy

If the trader is a sole trader and is to be made bankrupt or has entered into an individual voluntary agreement (IVA), the official receiver or insolvency practitioner will deal with it. They act as the trustee and deal with everything to do with the bankruptcy or IVA. You should write to the official receiver (or insolvency practitioner) to make your claim and to get information or raise any other issues about the trader's business practices. You will not normally be able to take legal action for any money you are owed, and if the person has no assets you will not be paid. However, in both cases, practical, helpful advice may be given to try to help you.

Points to note: 

• The insolvency practitioner must invite all creditors to the creditors' meeting and eventually report to them but has no duty to act as a general advisor to them.
• The insolvency practitioner may sell the assets (anything of value) of the company to another company or, perhaps to a group of employees who can form a new company and go on to trade without taking responsibility for the debts and liabilities of the previous business.
• A director can form a new company under a different name and continue trading without taking responsibility for the liabilities of the old one.
• Consumers have no special protection in insolvency law. 
• Wrongful trading - the insolvency practitioner must report to BIS (Department for Business, Innovation & Skills), if they believe there is evidence of "wrongful trading" by the directors. This is a technical term in the Insolvency Act. Directors may be sued by BIS and may be disqualified for a number of years. This is unlikely to help individual consumers to get their money.
• Ascertained goods - sometimes a company may shut down when your goods are in the workshop or are about to be delivered. If your goods can be specifically identified - 'ascertained' - you should be able to claim them back. You should inform the insolvency practitioner and anyone else who may have any claim on the goods straight away.

Some protection for your money

1. For goods or services costing more than £100, pay by credit card as you may be able to claim against the credit card company if the goods or services are not delivered.
2. If you have paid using certain debit cards and the goods you have ordered have not arrived because the seller has ceased trading ask your bank to consider a 'chargeback' claim. However, strict time limits apply so you will need to act quickly.
3. Never pay in advance for anything if possible. 
4. Consider a company which offers an insurance backed guarantee, but check the terms and conditions of any guarantee.