insolvency law change

New proposed changes to legislation could provide more protection to consumers that have pre-paid for goods from a mobility retailer that becomes insolvent

The proposals were announced on 27 July and look set to change the current rules on ‘transfer of ownership’ that date back to 1893.

Under the existing ‘transfer of ownership’ rules, if a company becomes insolvent, goods paid for in advance that are still in the company’s possession may be considered as assets belonging to the business.

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These goods can then be held by the company’s administrators and used to pay off the firm’s debts, potentially leaving consumers with nothing.

In the mobility sector, there have been several cases of this happening, with vulnerable consumers pre-paying for goods, often made-to-measure mobility furniture, and finding themselves out of pocket when the companies become insolvent.

Describing the existing rules as not fit for modern-day shopping practices, the proposed changes will set out ways of identifying the consumer as the legal owner, including if goods have been labelled or altered for the buyer.

Consumer Affairs Minister, Paul Scully, said: “With more and more people prepaying for goods online, it is so important our laws are up to date to reduce the risk of customers losing out if a business, unfortunately, becomes insolvent.

“This consultation will look at how the law can be brought into the 21st century, providing clarity for those managing insolvencies and better protection for consumers.”

The Law Commission recommends that legislation should include a list of events and circumstances which would be sufficient to transfer ownership to the consumer.

In particular, it proposes a transfer of ownership if “the goods have been altered to a specification agreed between the consumer and the retailer,” covering situations where consumers have prepaid for made-to-measure riser recliners, for example.

The changes would build on the recent Corporate Insolvency and Governance Bill, which made permanent additions to the UK insolvency regime, as well as containing a series of measures to amend insolvency and company law to support the business to address the challenges resulting from the impact of coronavirus.

The Bill received Royal Assent on 25 June 2020.

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