Rights in a store's bankruptcy: What you should know
In a surprising turn of events, furniture and electronics retailer Smiths City has gone into voluntary administration, leaving customers across the country in a state of uncertainty. The latest Centrix Credit Indicator for August shows that company liquidations are up 26% year-on-year, partly due to increased enforcement activity by Inland Revenue.
One of the affected customers is a Christchurch woman named Lynette, who paid nearly $4500 for a Lazy Boy suite from Smiths City. She was initially told that the couch she wanted was in the store and was put on hold for her to pick up on Tuesday, but when she arrived, the store was closed due to liquidation. Since then, Lynette has not received any updates about her order, which has been two months overdue.
Similarly, Jess Pasco spent about $1200 on a new washing machine at Smiths City last Wednesday, but the store was closed when she went to pick it up on Tuesday. Other customers who have paid a deposit on an item before the store closes are entitled to get their money back, but it doesn't guarantee they will receive it.
In a liquidation, unsecured creditors like customers are treated equally and may receive cents on the dollar or nothing if there's not enough money to pay all of them. Gift cards are considered unsecured debt and, while customers have the right to claim them in a liquidation, it may not be worth the hassle.
The rights to the Lazy Boy sofa solution of Smiths City in Christchurch would typically depend on the company's intellectual property agreements and liquidation proceedings, but generally, such rights would be managed by the liquidator and could be sold to satisfy creditors.
Auckland barrister Chris Patterson stated that while this situation is unfortunate, it is not uncommon. He further explained that customers' rights often come down to what is in the contract when they bought the item. However, he also emphasised the practical difficulties in determining whose item is whose even if the title passes.
In light of these challenges, customers should take steps to protect their own interests. Administrators are calling for "urgent" expressions of interest for potential buyers of Smiths City, and it may be a good idea for affected customers to keep a close eye on any developments in this regard.
Sara, Lynette's daughter, has emailed the liquidation company but has yet to hear back. Despite the wait, Lynette remains hopeful and has declined the offer of a refund from the new manager of the Hornby store.
While the law does not provide clear answers and solutions for this problem, it is crucial for consumers to be vigilant and proactive in safeguarding their rights. Businesses taking money from consumers while knowing they are on the brink of a shutdown may be unethical, but there are no clear laws to prevent this.
In the end, it is a reminder for consumers to always check the financial health of the companies they are dealing with and to be aware of the risks involved in pre-paying for goods or services.
