AdviceCentre™ Article

Help! I'm owed money by a company whose gone into administration

Plebble's guide to what to do if a company you have ordered from goes into administration and things you should consider to try to maximise your protection in the future.

As the credit-crunch continues to bite, more and more of us are falling foul of companies going into administration after we've paid for an item, but it has not yet been delivered. What rights you have if this happens depends on how you paid for the item in the first place.

1. If you paid by credit card

Section 75 of the Consumer Credit Act 1974 says that your credit card provider is equally liable as the company you bought from for the successful completion of the contract. So if the company does not satisfactorily complete your order because of administration or other circumstances, the credit card provider must refund you. But as always, it's not totally straightforward.

When you can claim under Section 75:

a. The item must be worth more than £100 and less than £30,000.

b. If you used your credit card to pay a deposit but then paid cash or used a debit card for the rest, as long as the total cost of the item was worth between £100 and £30,000, your credit card provider is liable and must refund you the total amount.

c. If you split payment between more than one credit card, as long as the total cost of the item was worth between £100 and £30,000, then you are entitled to get the total amount back from any one of the credit card providers you chose (you just cannot get the money back more than once!).

What you should do now:

a. Contact your credit card provider (click here for a list of contact details for the UK's major banks & building societies). Tell them you want to make a claim under Section 75 of the Consumer Credit Act. Usually they will send you a form to fill out. They may ask you to send them something to show that the company is in administration. Administrators for the company usually publish something like a “letter to customers” on the website of the company concerned which you can print-off and send to your provider. But if you can't find anything to use, the provider can check a company's status themselves, so simply insist that they do some work! (Plebble tip: your credit card provider is equally liable, so do not let them fob you off by telling you should try to get money from the company first).

b. If you are struggling to get any sense out of your provider, write them a formal letter and send it by registered post. Click here for a suggested template for your letter.

c. If you do not receive a satisfactory reply, take a look at Plebble's Guide to How to Complain about your bank or building society for information on how you can escalate your issue.

When you can't claim under Section 75 (common exceptions):

a. If you paid by credit card, but the item you ordered cost less than £100, you are not legally covered by Section 75.

b. Section 75 applies to a single item so unfortunately, even if your total bill was over £100, if all the individual items cost less than £100, then you are not covered for anything. (Plebble tip: be particularly careful with single tickets for flights. Each single is considered as an individual item so, even if your total return journey was over £100, if the single tickets were less than £100 each, you are not covered. Whereas if your ticket for the same journey was a return ticket costing more than £100, you would be covered).

c. The credit card provider is only liable under Section 75 if you paid the company direct. If you paid via a third party, such as through a payment scheme like Paypal, then the credit card company does not have to pay. This is because the transaction is between the credit card company and the third party and this contract has been "successfully completed." (Plebble tip: if you buy flight tickets through a travel agent, rather than direct from the airline, and the airline goes bust, you are not covered by Section 75. This is because the travel agent was contracted to provide you with the tickets, not the flight itself and the travel agent has therefore successfully completed the contract. However, if the cancelled flight was part of a holiday package, then the travel agent is liable because the contract was for the whole package, which has not been successfully completed).

What you should do now:

a. Contact your card provider anyway. Whilst they might not be legally obliged to help you under Section 75, they may be sympathetic. This applies particularly to cases where there may be some ambiguity about whether you understood that you paid through a third party (eg. ordering from companies via general e-commerce sites like Amazon.co.uk). Your provider may be able to reclaim the money via a chargeback scheme - see next section for more information.

b. If you paid via a third -party like a payment scheme, contact them directly because they may have their own dispute procedures which you may be able to claim through. However, be aware that these will have limitations - see section 3 for more information.

2. If you paid by debit card (or credit card but not covered by Section 75)

Some card providers are in what is called a "chargeback" scheme. This means that if you dispute a transaction (eg. because you never received the item you paid for), your card provider can try to re-coup the money from the bank of the company concerned and use it to refund you. This can still work when a company has gone into administration because you are claiming from the company's bank, not the company itself. However, this is just a scheme - the banks are not legally obliged to do anything.

When you can claim under chargeback

a. All Visa debit cards, Visa credit cards (when Section 75 does not apply - see above), Prepaid Visas or Visa Electons are part of the Visa chargeback scheme.

b. Mastercard credit cards (when Section 75 does not apply) are covered by Mastercard's chargeback scheme.

c. Switch and JCB have their own chargeback schemes.

What you should do now:

a. Contact your card provider - i.e. the bank or company NOT Visa or Mastercard (click here for a list of contact details for the UK's major banks & building societies). Tell them you want to “dispute a transaction” and make a claim under the chargeback scheme. As with Section 75, they may need something to show that the company is in administration (see above). (Plebble tip: providers will usually only give you 120 days from when you discovered there was a problem to make a claim, so the quicker you start the process the better).

b. If you are struggling to get any sense out of your provider, write them a formal letter and send it by registered post. Click here for a suggested template for your letter.

c. If you do not receive a satisfactory reply, take a look at Plebble's Guide to How to Complain about your bank or building society' for information on how you can escalate your issue.

When you cannot claim under chargeback:

a. Unlike Visa Debit, Mastercard debit cards are not covered by Mastercard's chargeback scheme. If you used a Mastercard debit card, contact Mastercard to see if they can help and if not, see section 4 for what to do next.

b. If you used your card to pay via a third-party like a payment scheme, card providers may not allow you to claim via chargeback. See section 3 for what you should do now.

3. If you paid via a payment scheme like Paypal or Nochex

If you paid via a payment scheme like Paypal or Nochex, then life starts to get a bit complicated because what you are actually doing is buying payment 'units', which you then use to buy things – i.e. it can be difficult to show a direct link between your card and the item you eventually bought. If you used a credit card, any rights you may have had under Section 75 do NOT apply. And only some providers like HSBC and Barclaycard will allow you to claim via chargeback.

If your card provider does not allow you to claim via a chargeback scheme, then contact the payment company directly because they will have their own dispute procedures. However, these procedures can be limited. For example, you have to report a problem to Paypal within 45 days of paying for the item and they will only refund you if they uphold your claim and manage to re-coup the money from the Paypal account of the company concerned. (Paypal's Dispute Policy).

(Plebble tip: WorldPay operates differently to Paypal or Nochex. WorldPay is a secure payment facilitator, rather than a payment scheme. They are not considered as a third-party and therefore your rights will be the same as if you had paid the company in administration directly with your card).

4. If you paid cash or are not covered by your card provider

If you paid cash or cannot get a refund from your card provider then the final thing to do is to contact the administrators for the company who has gone bust and file a claim.

You should write to the administrator, if possible via registered post. The administrator's contact details are usually published on the website of the company whose gone bust and in the media. Make sure you include the amount you are owed and any order information you have. Click here for a suggested template for your letter. (Plebble tip: there will be a deadline for claims so try to get your letter in asap.)

Key points for maximising your protection:

1. If possible, always use a credit card for orders and big ticket items.

2. Be aware of how buying through third parties like travel agents and payment schemes can affect your rights.

3. Keep information on orders, receipts and credit card statements in a safe place.

4. Take a look Plebble's Guide to Shopping Online for more information on your rights and protecting yourself.

Further information and sources:

Financial Ombudsman

Consumer Direct

Money Saving Expert.com

Which? Advice

Guardian.co.uk

Plebble's Guide to Shopping Online

Plebble's Guide to How to Complain about an online retailer

Plebble's Guide to How to Complain about your bank or building society

Rate these businesses/organisations:

• Paypal (0.47)
• Nochex (-.--)
• Banks & Other Financial Institutions on Plebble.com
• Credit & Finance Companies on Plebble.com

Posted by Plebble Admin at 16:17 on 01-Apr-2009