Angelique Ruzicka investigates what rights you have when a company falls apart after you parted with money for a service or product
When the economy takes a knock, it’s not only consumers who struggle but businesses too. During tough times it’s not uncommon for businesses to go bust as they struggle to make ends meet. However, it’s not always the economy that puts a strain on companies. Sometimes businesses go under because of fraud or bad management, leaving their customers and employees high and dry.
Buying anything from new businesses that are still trying to establish themselves is also risky because, according to reports, more than half (70% to 80%) of small and medium enterprises typically don’t make it beyond the first year of trading.
However, smaller businesses sometimes offer better savings than some of the more established players and, in a world where the general advice is to try to bag a bargain, it’s hard not to settle for a company or individual willing to give you a good deal.
How can you protect yourself from the possibility of that business going bust, or the owner making off with your money? We ask pertinent questions, and they are answered by PJ Veldhuizen, managing director at law firm Gillan and Veldhuizen:
What are my rights if a business goes bust?
According to Veldhuizen, if you’ve parted with money for a service or product and you haven’t got what you paid for when the company goes bust, you are no better off than any other creditor.
Unless money has been received into a trust, like an attorney who has put the money into trust that is separate from the business, the money will fall into the general pot to be distributed among all creditors.
“You will be required, if it is a company that has gone into liquidation, to submit your claims with proof at the first meeting of creditors, which will be scheduled by the liquidator. You must be careful because if there are not enough assets in the company to satisfy the cost of liquidation, anybody who proves a claim at a meeting of creditors can be called upon to make a contribution to the costs of liquidation. You must first check with the liquidator if there is any danger of a contribution being levied on concurrent creditors,” warns Veldhuizen.
What can I do if the business owner has made off with my money?
If there is a lot of money at stake, you can lay a charge with the police or bring legal proceedings against the company.
Veldhuizen says: “If it is a substantial amount of money you can cause the company to be liquidated and you could, through the liquidator, pursue the person who has run off with the money, or pursue them yourself if the liquidator has refused to do so.”
If it is a small amount of money, you can sue them through the Small Claims Court, which typically deals with civil matters in which the claim is less than R15 000. These courts exist to make the process of your claim quicker and cheaper, as you don’t have to use an attorney. You can, however, get legal advice before you go to court. For more information, see the department of justice’s website at justice.gov.za/scc/scc.htm.
If the person who owes you money has gone abroad with your funds, it makes things a lot more difficult and complex. In such cases it would only make financial sense to pursue that person if they have taken a lot of money from you.
“You can make use of the Reciprocal Enforcement of Civil Judgements Act to recover your money, but it’s a huge process, expensive and only available in certain countries,” says Veldhuizen.
The chances of recovery
“The sad news is that if the company does go bang then in all likelihood your chances of recovery are often zero,” says Veldhuizen. He advises consumers to try to deal with reputable, large companies where possible and be careful about parting with funds.
“Don’t put all the money into a supplier's account and hope they will supply the service/goods. If you are getting a deal from a small supplier, realise it is a risk, and that is why you are getting the discount,” he says.
How to avoid losing all your money
It’s possible to lose money with small and big businesses, but there are things you can do to ensure you don’t get fleeced:
- Don’t pay in full upfront. “Pay a smaller deposit and pay the balance on completion/delivery/receipt of goods,” advises Veldhuizen.
- Try to deal with reputable and established companies. If a business has a track record there may be less chance of it going bust. If you deal with someone who’s just started out, there’s a chance they could be running a fly-by-night operation.
- If the deal or service seems too good to be true, then it may well be. Find out from the seller or service provider why they are able to provide you with such a discount. How are they making their money? If they can’t give you a plausible explanation, rather walk away.
- Get legal advice if you’re unsure. “If you are going to be spending a lot of money, you should consult with an attorney,” says Veldhuizen. Alternatively, get testimonials and quotes from other providers in the industry.
- Hire a supplier/service provider that belongs to an association so they have to adhere to regulations, and that you could report to should things go wrong. For example, ensure your builder is registered with the National Home Builders’ Registration Council that provides mediation services if there are disputes or disagreements.
- Know your consumer rights. Remember that you have protection under the Consumer Protection Act. The Consumer Goods and Services Ombud (CGSO) can be called on to investigate contraventions of the law, free of charge. Call the CGSO on 0860 000 272 or email firstname.lastname@example.org.
- Pay with your credit card. Protection is offered by Visa and MasterCard internationally. If the goods or services aren’t provided by the merchant, you can ask for a reversal of the transaction.