Business sale or collapse

Your rights if a trader goes into receivership or liquidation, or a business is sold.

11oct business sale or collapse hero

We explain your rights when a trader goes into receivership or liquidation, or when a business is sold.

When a business collapses it's usually bad news for customers who have goods in for repair, are trying to deal with a faulty product, or have paid deposits but not received the goods. Find out about your rights and how to protect your interests.

Receivership, liquidation & voluntary administration

When people say a company has "gone bust", they usually mean it is in receivership, or liquidation, or both.


If you can't make the payments on your car, eventually the finance company will repossess it. Receivership is the business equivalent of that process.

A receiver is likely to close a company if it's making a loss by trading.

It usually happens when a bank or financier that holds a security (debenture) over the assets of a company, decides that the company isn't able to pay back money owed. So it appoints a receiver to take control of the company.

The receiver acts for the bank or financier that appointed them, and does not recover money owed to other creditors.

Sometimes the receiver will keep the company trading. But if it's making a loss by trading, the receiver is quite likely to decide this will only make matters worse - so the doors are closed.


This means it's all over. The company will be wound up, with the assets sold, debts recovered and creditors paid some or all of what they are owed.

A liquidator is appointed by the High Court or by special resolution of shareholders to look after the interests of all creditors. There is a priority order for payouts:

  1. Liquidator's fees and expenses.

  2. Secured creditors: those who have loaned the company money with the assets of the company as security. This might be in the form of a mortgage over a building or piece of land, or a debenture (a loan secured by the assets of the company).

  3. Preferential creditors (such as employees owed wages or holiday pay, and Inland Revenue owed GST and PAYE).

  4. Unsecured creditors: customers and others who are owed money, goods or services, but who do not have a secured interest in the assets. To pay for something before you receive it is, in effect, to make an unsecured loan.

A liquidator may be appointed either before or after a receiver, but the requirements of the receiver take precedence.

Voluntary Administration

Under this option, if a board of directors thinks that its company is in trouble it can put the company under the temporary control of an independent administrator. The administrator takes full control of the company to try to work out a way to save either the company or its business.

Administration is intended to be a relatively short-term measure that freezes the company's financial position while the best option for the company's future is worked out. During this time creditors can't take back their goods, take legal action against the company, or take legal action against directors under personal guarantees.

The administrator's options and recommendations are voted on by the creditors. Usually this requires them to accept a compromise and to wait for at least some of their money. If the creditors don't like the rescue plan, or the company cannot be saved, it goes into liquidation.

Your rights

Losing your deposit
Under insolvency law, customers who paid a deposit for a product or service are unsecured creditors. If a company is in voluntary administration wait to see if it decides to trade its way out of difficulty. If it does reopen its doors then either try to get your deposit back or pay whatever amount is owing and take possession of the goods as soon as possible.

If a company is in receivership or liquidation there's usually not enough money to go around, so you are likely to get only a fraction back, or even nothing at all. But you still should make a claim straight away with the liquidator, or you may not get into the queue at all. You'll need to fill in a creditor's claim form - available from the liquidator.

If you paid for the product or service by credit or debit card, talk to your bank about a chargeback – a refund to your card.

Finding the receiver or liquidator
To find out who is the receiver or liquidator, check online notices from the company or media, public notices in major newspapers, or you could visit the company’s business premises. Often there is a sign on the door telling you who to contact. If the company is in receivership and still trading, ask staff for the receiver’s contact details. If they are court appointed receivers or liquidators the court can tell you how to contact them.

Goods for repair
If the company has possession of a product you'd sent in for repair, you are entitled to get it back. But you will have to identify it - preferably with the serial number or some other positive method - and pay for any repairs done, assuming you were liable for the cost in the first place.

If you can't positively identify the goods you own, you will have to lodge a claim and hope for the best.

If you get your product back, but it's not fixed, you could try the manufacturer or distributor. If it's quite new, it may be covered by a manufacturer's guarantee. Even if it's not, you may have the right to claim against the manufacturer/distributor under the Consumer Guarantees Act.

If this doesn't apply, ask the manufacturer to direct you to another repair company.

Faulty work
If the company has botched a repair job on something you own, you should put in a claim for the cost of the repair with the liquidator - you'll be treated as an unsecured creditor.

If you're paying something off on layby when the company stops trading, you have the right to pay for and collect your goods, as long as you're up to date with the payments. But do it as soon as you can.

Laybys are covered by the Fair Trading Act for goods priced at $15,000 or less.

If your retailer goes into receivership, contact the receiver, whose name and address will probably be on a sign on the shop doors. Assuming your goods are still there, you can continue with the agreed payment schedule. But if a number of people own goods like yours and there aren’t enough to go around, priority goes to those with the longest layby. If there aren’t enough to go round you are theoretically entitled to a refund. However, when a business goes bust, few creditors get all their money back.

How limited is a liability?

It used to be reasonably common (and frustrating) for companies to go into liquidation and then within a short time a similar-sounding company with the same people would be operating from offices in the same neighbourhood. Under the Companies Act, these new companies were traditionally treated as a separate legal entity with limited redress for a consumer against the directors.

However, changes to the Act in November 2007 have been designed to prevent the use of these kinds of so-called "phoenix companies". For 5 years following liquidation the director of a failed company must not be involved in a phoenix company or in a business with a similar name to the failed company. If a director tries to do this they'll be personally liable for the debts of the new company while it trades under the unacceptable name. They may also face fines and imprisonment.

What does limited liability mean?

This is a legal term that means a company must meet its own debts, and the liability for those debts is limited to the assets it owns.

This protects the personal assets of the shareholders, whose liability is limited to any unpaid amount on their shares, or as provided by the company's constitution.

However, in order to borrow money, shareholders in some companies (especially small, family businesses) are required to guarantee to meet the liabilities of the company.


The company directors should not get off scot free if they are responsible for customers' loss.

If the directors of a failed company have themselves failed to meet their responsibilities under the Companies Act (not to trade insolvently, and to make decisions in the best interests of the company), they can be sued personally by the receiver, liquidator or creditors.

Checking company status

To find out whether a company is in receivership or liquidation, check the database of the Companies Office.

Sale of a business

Most of our deals with businesses are straightforward - they provide the goods or services, we pay up, end of story.

However, sometimes you need to go back to the business - for example, if the product is faulty or if you want to redeem a voucher. What are your rights if the business has changed hands?

The answer depends on what kind of deal was done between the business seller and the new business owner. Often it's difficult for you to find this out. Here are some of the options.

Complete sale
If the new owners bought everything, including the physical assets, client list and financial liabilities, then in our opinion you should be able to insist on them honouring the retailer's Consumer Guarantees Act obligations or any un-expired gift vouchers you bought before the sale. A good clue to this kind of sale is where the new owners are using the old business name.

Partial sale
A new owner might choose to buy the physical assets of a business, but not the financial liabilities. Often these new owners trade under a new name. The position here is less clear in terms of your rights. We suggest that you contact the new owners and discuss your problem with them. If they care about good customer service they may well help you out.

Business closes down
If a business wants to stop trading there's no reason why it shouldn't. Just because a business has been around for a long time, or is well known, doesn't mean it has to always be there. It can be disappointing if your favourite coffee house closes down or the insurance company stops offering cover, but that's life. There is very little you can do about it. Here's what little is left:

  • If you have a faulty product and the manufacturer stops trading go to the retailer. They are the 'supplier' in the terms of the Consumer Guarantees Act so they have an obligation to help you.
  • If you have a faulty product and the retailer stops trading go to the manufacturer. Manufacturers also have obligations under the Consumer Guarantees Act.
  • If you have a contract with a business, that business has to fulfil its part of the contract. For example, if you have a contract with a rubbish removal company to empty your household rubbish bin each week for a year, they can't choose to stop half-way through the year without some kind of penalty. In reality this will probably be a refund of your money for the remaining part of the year.
  • If a business owes you money, make sure you keep track of the contact details of the business owner. A limited liability company must clear its debts before it can be removed from the register of companies.

Our advice

  • If you have to pay a deposit, try to keep it to about 10 percent and always get a receipt. For some purpose-built goods like kitchen joinery, you will have to pay a much higher deposit - commonly 40 to 50 percent of the contract price. Check out the trader you are dealing with before paying such a deposit. Be wary of companies that insist on an unusually large deposit, where it is not industry standard to do so. This can be a sign of cash-flow problems.
  • If you leave goods to be repaired, label them with your name and address. Get a receipt, make sure you know where they are held and keep a record of serial numbers.
  • For internet orders, stick to reputable sites. Ask for a phone number and street address as well as an email address. If a site claims to be approved by a business or consumer protection organisation, click on the link to check the endorsement.

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