Escom PC owners left with worthless warranties

Buyers of computers from the German group Escom, which went into receivership in July, have lost about pounds 5m on now-useless extended warranties.

Escom manufactured computers in Germany and Scotland, but became well known in Britain only after it took over 168 Rumbelow stores in March last year. It sold more than 150,000 machines in the next 12 months.

Every buyer received a one-year guarantee; for a further payment this could be extended to three years. At first relatively few extended warranties were sold, but as Escom discovered how profitable they were it pushed them hard. By this summer about a third of all Escom computers were sold with the warranties.

Escom did not provide the technical support itself. That was handled by ICL Sorbus. David Hesketh, general manager of the help desk services at ICL Sorbus, says it was paid in arrears for each Escom query or engineer's visit. By this summer payments were falling behind. "We didn't want to stop providing the service because that would have prevented Escom trading out of its difficulties," he said.

The group went into receivership in July, partly because of troubles in Germany and partly because it had expanded too fast in the UK. Deloitte & Touche took over as receiver. Mr Hesketh said: "We told them we must carry on the service but they said they were not in a position to pay us." The stores were closed after the receivers failed to find a buyer.

ICL Sorbus was still taking 1,500 to 2,000 calls a day, and offered Escom customers new guarantees, for which they would have to pay. It also started providing telephone back-up on a premium rate phone line in an effort to claw back its million-pound plus loss on the contract.

All Escom customers have lost the free help desk support, but those who took out the extended warranty have also lost cash. Richard Gould, a researcher from Lancaster, bought an pounds 1,100 P100 Pentium personal computer from Escom in April and was persuaded to pay pounds 160 plus VAT for a warranty. "I asked what would happen if they went bust and they said 'we have a stable German parent'."