When a company enters liquidation, it raises several concerns for business owners, customers, and other stakeholders. One pressing issue is who bears responsibility for product guarantees and warranties. Understanding the legal and practical implications is essential for business owners navigating liquidation or dealing with businesses that have ceased trading.
What Happens When a Company is Liquidated?
Liquidation is the formal process of closing a company and distributing its assets to pay creditors. In the UK, liquidation can take several forms, including:
- Creditors’ Voluntary Liquidation (CVL): Initiated by the company when it cannot pay its debts.
- Compulsory Liquidation: Court-ordered, often due to a creditor’s petition.
- Members’ Voluntary Liquidation (MVL): For solvent companies that wish to close down.
Once a company is liquidated, its business operations cease, and the appointed liquidator is responsible for selling assets and addressing claims from creditors, including those related to guarantees and warranties.
Product Guarantees and Warranties Explained
Guarantees and warranties are commitments made by a company to its customers regarding the quality, durability, or performance of its products or services. These commitments can be:
- Statutory: Required by law, such as rights under the Consumer Rights Act 2015.
- Voluntary: Additional promises offered by the company beyond legal requirements.
If the company enters liquidation, fulfilling these commitments becomes more complicated.
Who is Responsible for Honouring Guarantees and Warranties?
In most cases, the company itself is responsible for product guarantees and warranties. However, if the company no longer exists due to liquidation, customers may face challenges in claiming support. Here’s what happens:
- Statutory Rights: Customers still have protection under the Consumer Rights Act 2015. If a product is faulty, customers may have a claim against the retailer, distributor, or manufacturer, depending on the circumstances.
- Third-Party Guarantees: Some warranties are backed by third-party insurance providers. If this is the case, customers can contact the insurer to seek redress.
- Credit Card Protections: Under Section 75 of the Consumer Credit Act 1974, customers who paid using a credit card may be able to claim a refund or compensation from their card issuer for products over £100.
- Liquidator’s Role: Customers can register as unsecured creditors with the liquidator to claim compensation for unfulfilled guarantees or warranties. However, payouts are often minimal and depend on the remaining funds after secured and preferential creditors are paid.
Steps for Business Owners to Mitigate Risk
If you’re a business owner concerned about product guarantees and warranties in the event of liquidation, consider these strategies:
- Third-Party Insurance: Offer warranties backed by reputable insurance providers to protect customers.
- Clear Communication: Ensure customers understand the terms of guarantees and warranties, especially if external coverage applies.
- Financial Monitoring: Regularly assess your company’s financial health to identify potential risks early and take preventative measures.
Conclusion
For UK business owners, understanding the implications of liquidation on product guarantees and warranties is critical. While statutory rights and third-party protections provide some safety nets for customers, clear planning and communication can help mitigate risks and maintain trust. If your company is facing financial difficulties, seeking advice from an insolvency practitioner can help you navigate these challenges effectively and responsibly.
If you need expert guidance on managing insolvency or understanding your obligations, contact Voscap today on 020 7769 6831, or email help@voscap.co.uk. We specialise in helping UK businesses navigate financial challenges with clarity and confidence.
