Insolvency – Assets – Potential consumer gain or Insolvency Practitioner’s headache?

The task of identifying the extent of the assets of an insolvent business is set to become more onerous for Insolvency Practitioners (IPs) if the Government follows through on its stated intention to bring forward legislative changes to enhance the rights of consumers who have pre-paid for goods.

Currently, if a retailer enters formal insolvency, then subject to various factors, goods which have been paid for in advance by a customer but which remain in the company’s possession remain in the ownership of the insolvent business and may be realised by the IP office-holder for the benefit of creditors generally.  IPs will utilise the information obtained from their initial enquiries, the company director(s), the company’s financial records and third parties e.g. creditors, to identify assets belonging to the company.

The Law Commission has agreed to produce and consult on draft legislation to amend the Consumer Rights Act 2015, in order to create a non-exhaustive list of events that will be sufficient to identify goods as being linked to a contract and result in a “transfer of ownership” from the insolvent business to the customer, including but not limited to circumstances where:

  • the goods have been labelled with the customer’s name in a way that is intended to be permanent or otherwise set aside for the customer in a way that is intended to be permanent;
  • the goods have been altered to a specification agreed between the customer and the insolvent business;
  • the customer is told that goods bearing a unique identifier will be used to fulfil the contract;
  • the goods have been manufactured to a specification agreed between the customer and the insolvent business; and/or
  • the goods are delivered to a courier for delivery to the customer.

Whilst the intention of the new legislation (in part) is to provide clarity for those managing the affairs of insolvent businesses, there will undoubtedly be some grey areas which will fall to be determined by the Court and individuals will be emboldened to threaten or take action.   The proposed changes are likely to increase the scope for claims to ownership of certain assets, lead to an increase in disputed claims and increase the IP’s costs of determining ownership of the assets in question.  The unintended consequence may well be a reduction in the extent of realisations available for distribution to creditors generally.

To read more about the proposed changes for consumers who have pre-paid for goods click here.

John Bradshaw is a partner and specialist in Insolvency & Business Recovery at Barker Gotelee Solicitors.

Ipswich Insolvency Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email