What to do if the balloon goes up

There are ways to soften the impact of a company bankruptcy on customers, says David Prosser
Click to follow

Red Letter Days voucher holders are not the only consumers wondering whether they will end up out of pocket. In the past week, the demise of Granville Technology has hit customers of the Time and Tiny computer chain, while travellers with budget airline EU Jet were left stranded by the failure of its parent company.

Tony Northcott of the Trading Standards Institute says consumers caught out by situations such as these have few rights. "You need to make a claim for your losses from the company's liquidators, but you will be classed as an unsecured creditor and that puts you at the end of a long queue," he warns.

Nick Arnold of Which?, the consumer group, says customers of a failed company have to wait their turn for a share of its assets just like everyone else. Before you get a refund, the Inland Revenue has to be paid - so do local authorities, staff and secured creditors such as banks. "You can't protect yourself really," he warns, "unless you make a payment on credit card".

People who pay for goods and services on plastic may be better off than they realise. Ian Barber, of Barclaycard, Britain's biggest credit card company, says there is widespread confusion over your rights. Customers are routinely told they are only protected if they have bought something valuable using a credit card, but this is not necessarily the case.

There are two possible sources of redress. The more limited of these is the chargeback system. "Whenever you've bought something using a credit card, if you don't get what you've paid for, you're entitled to claim the cost back from the card issuer," Barber explains. "This rule also covers anyone who has lost out after buying something with a Visa debit card."

Debit and credit card issuers are not being generous. To make the payment, they reclaim the money they have paid out on your behalf from the bank of the company in trouble.

The chargeback system is limited. It covers refunds of payments for goods and services not received. Mastercard-issued debit cards aren't covered.

The second protection is provided for by Section 75 of the Consumer Credit Act. This requires all credit card providers - not debit card companies - to cover your losses if you use their plastic to pay for something worth more than £100 that you don't subsequently receive.

The definition of losses is wide. In addition to a refund, you are often able to claim for costs that result from a company's failure. In the case of EU Jet, if you bought your ticket using a credit card, the lender is likely to be liable for the costs you incurred getting home if you were left stranded abroad, as well as for the price of the ticket.

Similarly, in the case of Time and Tiny, many computer owners are very concerned that there is now no one backing the warranties they bought with their machines. But Barclaycard says it is likely to be able to cover the cost of repairs to a computer if one of its customers is unable to exercise warranty rights and bought the machine using the card. You may also be able to claim if you have to pay out for a new source of IT support.

Don't rely on your credit card company. Barber warns that there is some controversy over the extent of the protection under Section 75. "Some credit card providers interpret the law more stringently than others," he warns. You may have to argue your case strongly to recover all your losses.

Equally, don't overestimate the protection your credit card provider itself can give. Many people think they can order their card provider to cancel a transaction, but this isn't possible simply on your say so.

If you haven't got protection from a credit or debit card, explore other sources of redress. This is most likely to be a possibility in the travel industry (see story below), but other industries - particularly in financial services - run compensation schemes.

Double glazing is one sector where consumers often worry about cowboys and sharp practice. But you can protect yourself by only dealing with members of the Glass and Glazing Federation. It runs a scheme that will refund deposits worth up to £3,000 if a company goes bust before completing the work.

Some builders offer insurance-backed guarantees, but in an case, never pay more than 10 per cent of the bill upfront. You can pay the balance in stages as work is completed, sothe company won't take all your cash with it if it fails.

Finally, take extra care with internet-based businesses, particularly those that are online-only. If possible, stick to sites with links to associations such as Trust UK, Which? or Web Trader. Members of groups such as these adhere to codes of good practice.

If all else fails, at least register a claim, even if you think you are unlikely to succeed. "Give your details to the failed company's administrator or liquidator." says Northcott.

Worried about your holiday?

* Frances Tuke of the Association of British Travel Agents says many EU Jet passengers will have been surprised to find themselves not covered by compensation schemes. "If you book flights directly with an airline, you won't be covered by an official compensation scheme."

* This applies to small, low-cost airlines such as Easyjet and also the larger companies, including BA.

* However, if your travel plans include flight arrangements, and you book through an agent, you can get protection, as long as the company is a member of the Air Travel Organisers Licence (Atol) scheme. And some travel agents now sell insurance that for a few pounds will cover you in the event of the airline on which you are travelling going bust.

* The best way to protect other travel arrangements is to deal with members of Abta. It runs a scheme that will pay out if your agent goes bust.

* If an Abta-regulated tour operator or travel agent goes under while you're away, you should be able to continue as originally planned.

Where you stand with the companies in trouble

* Many customers of Red Letter Days will not lose out following the company's financial troubles. Under the terms of a rescue deal put together this week, experiences bought directly from the company will now be honoured. However, if you bought vouchers from a retailer - or were given such vouchers - you need to check back with the agent that made the sale. The new owners are trying to a deal to honour these purchases

* Customers of the Time and Tiny computer chains are in a less enviable position. Grant Thornton, the administrator, has secured funding to support "continuation of warranty cover on a limited basis and customer support". If you've paid out money but have not yet received a computer your best hope is likely to be your credit card provider. Grant Thornton has set up an enquiries desk - 0870 830 3288 or email enquiries-time@gtuk.com.

* Travellers caught out by the demise of EU Jet will also be lucky to get a refund from the company. It has appointed administrators in Ireland, but calls are directed to the company itself (00-353 617 23700) where an answering machine is the only contact. Customers who bought flights directly from the airline are not entitled to compensation under any travel industry schemes. Those who paid for EU Jet tickets on plastic should therefore contact their card providers.

Looking for credit card or current account deals? Search here