Consumer advice information

Insolvency

This guidance is for England and Wales

You may suspect that a trader is no longer trading when the business premises are closed during normal trading hours, the website is no longer accessible, letters and emails are unanswered or the telephone number is unobtainable.

There are laws that give you rights and remedies when you enter into a contract with a trader for the supply of goods, services and digital content. You may be entitled to a refund if you do not receive the goods, digital content or service you paid for. You may be entitled to a repair, replacement or another remedy if the goods or digital content are faulty or if the service you receive is below standard. However, if a trader has ceased trading it may be difficult for you to claim these rights.

The trader may have ceased trading because they are insolvent, which means that they cannot pay their debts when they are due. The Insolvency Act 1986 sets out the legal framework for dealing with insolvencies. The Insolvency Service, official receivers and insolvency practitioners (usually accountants or solicitors) deal with insolvency matters.

CATEGORIES OF INSOLVENT TRADERS

There are three categories of insolvent traders that you may have to deal with:

an individual trading as a sole trader that may become bankrupt. An individual may be able to avoid bankruptcy by setting up a debt management plan, an administration order, an individual voluntary arrangement (IVA) or a debt relief order (DRO). You can get information on debt solutions from the Citizens Advice consumer service
partnerships where the individual members may become bankrupt or the partnership itself goes into compulsory liquidation
companies that can be placed into administration, undertake company voluntary arrangements (CVAs), enter into administrative receivership, be placed into compulsory liquidation, members' voluntary liquidation (MVL) or creditors' voluntary liquidation (CVL)

Not every trader in financial difficulty is made bankrupt or goes into liquidation. There are different stages to the process and other legal arrangements can be made. Some companies may also cease to trade without being insolvent, such as when they are 'struck off' the register of companies. However, when it does happen, you may lose your money, goods may not be delivered or services not provided. The situation is likely to be uncertain for quite some time. If you paid for goods or digital content that were faulty or not supplied or a service that was below standard or not performed at all, you are an 'unsecured creditor'. You come towards the end of the line for payment if there is any money left after the expenses of winding up the company have been met and 'preferential creditors' (for example, staff who are owed wages) have been paid.

THE TRADER HAS CEASED TRADING: WHAT SHOULD I DO?

When you find out that a trader is no longer trading, you may have very few facts. You should email the trader or write to the business address and if it is a company, the registered office address setting out your claim. Visit Companies House on the GOV.UK website to find the registered office address of any company.

Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, when you buy goods, services or digital content, you are entitled to expect that the trader provides you with certain information in a clear and understandable way before you enter the contract. The information that a trader must provide depend on whether the contract was made on their business premises (including mobile premises), away from their business premises, such as in your home (off-premises contracts) or at a distance (without face-to-face contact - for example, internet, phone or post). If a trader has complied with the regulations, you should have their identity (or trading name), geographical address and a telephone number.

See the guides 'Buying at home: off-premises contracts explained', 'Buying by internet, phone and mail order: distance contracts explained' and 'Buying from business premises: on-premises contracts explained' for further details on the information a trader must provide.

Ask around locally for information and if you find out who the solicitor or accountant for the trader is, email, write or telephone them too as they may be keeping details of claims.

If you think that a trader might be in administration or no longer trading, but you have not heard from the official receiver or insolvency practitioner:

check the trader's own website for information
check Companies House on the GOV.UK website to find out if the company is insolvent and who is dealing with the case
if the company is in compulsory liquidation you can check the Insolvency Service on the GOV.UK website, telephone 0300 678 0015 or complete the online contact form for details of the official receiver's office close to where the trader was trading to see if it is handling the case
check the official public record in The Gazette
check records of an individual bankruptcy or a bankruptcy of an individual working in a partnership these are held on the individual insolvency register
post an enquiry on social media to see if anyone has information

You should write to the official receiver or insolvency practitioner to register your claim as a creditor.

For more information on insolvency procedures visit the Insolvency Service section of the GOV.UK website.

COMPANIES: LIQUIDATION / WINDING-UP

The initial stages of a limited company's liquidation or 'winding-up' are usually dealt with by an official receiver. If the company has assets, then an insolvency practitioner may be appointed at a later stage to take over full responsibility for winding up the company, selling assets (anything of value), dealing with claims and making all other arrangements.

If the official receiver or insolvency practitioner has you listed as a creditor (you are owed money by the company) you should be contacted and asked to complete a proof of debt form. If the company does not have sufficient assets, an insolvency practitioner might not be appointed and the official receiver will deal with the case.

SOLE TRADERS: BANKRUPTCY

If the trader is a sole trader (a business owned by one person and not registered at Companies House) and is to be made bankrupt, the official receiver will take control. If the trader has enough assets (anything of value) to meet costs, a meeting of creditors may be called and an insolvency practitioner appointed. They act as the trustee and deal with everything to do with the bankruptcy. You should contact the official receiver (or insolvency practitioner) to make your claim on a proof-of-debt form, obtain information or raise any other issues about the trader's business practices. You will not normally be able to take legal action for any money you are owed and if the trader has no assets (anything of value) you will not be paid.

PARTNERSHIPS: BANKRUPTCY AND LIQUIDATION

Individual members of the partnership are responsible for debts due. Partners can go bankrupt individually or the partnership itself can go into compulsory liquidation.

Some partnerships are limited liability partnerships (the letters LLP will appear after the name of the partnership). In this case, the individual partners would not be personally responsible for debts.

POINTS TO NOTE

Once bankruptcy or liquidation proceedings are in place, the official receiver or insolvency practitioner should give details of any decisions you have to make as a creditor. This may be done without a physical meeting taking place. In due course, you will receive notification of payments (if any) due to creditors.

The insolvency practitioner may sell the assets (anything of value) of the company to another company, or perhaps to a group of employees who can form a new company and go on to trade without taking responsibility for the debts and liabilities of the previous business.

A director can form a new company under a different name and continue trading without taking responsibility for the liabilities of the old one.

In most cases, a director of a company in compulsory liquidation or creditors' voluntary liquidation cannot form, manage or promote any business with the same or similar registered or trading name as the liquidated company for a period of five years.

Sometimes a company may cease trading when your goods are in the workshop or are about to be delivered. If your goods can be specifically identified ('ascertained') you should be able to claim them. You should, straight away, inform the insolvency practitioner and anyone else who may have any claim on the goods.

After insolvency proceedings have been finalised, the Insolvency Service may investigate in cases where there is a suggestion that a director's conduct makes them unfit to be a company director. The Insolvency Service's Company Investigations team can also investigate companies and limited liability partnerships that are still trading if it is believed they are engaging in corporate abuse. This can result in a number of outcomes, including the company or limited liability partnership being wound up and directors being disqualified from managing a limited company for up to 15 years.

Some traders may pretend to be bankrupt or claim that their company has ceased trading to avoid their responsibilities and liabilities to their creditors. Don't accept the information given to you by a trader at face value. Always carry out your own checks.

If you want to report misconduct by a company, a director or individuals who have been made bankrupt visit the Insolvency Service's website for guidance on the process.

The Corporate Insolvency and Governance Act 2020 provides support mechanisms for companies that are in trading difficulty in order to maximise their chance of survival. The official receiver or insolvency practitioner can give you advice on what this means if you are a creditor of a company in trouble.

IS MY MONEY PROTECTED?

If you made the transaction for goods or services using finance. You could have a claim against the finance provider under section 75 of the Consumer Credit Act 1974 if the trader is in breach of contract or there has been a misrepresentation. This could include supplying faulty goods, non-delivery of goods or making false claims about goods. This equal liability only applies if the price of the goods is more than £100 and less than £30,000. In the event of a legal claim, you could sue the finance provider. If the claim exceeds £30,000 and is less than £60,260 and the finance was arranged specifically to buy those goods, you may be able to claim against the finance company under section 75A of the Consumer Credit Act 1974. This entitles you to pursue the finance provider but only if the original trader has become insolvent and you have taken reasonable steps to pursue them.

If you use a debit card to purchase goods or if you use a credit card and the price of the goods is less than £100 (your rights under s.75 of the Consumer Credit Act 1974 would not apply), you may be able to take advantage of the chargeback scheme. Chargeback is the term used by card providers for reclaiming a card payment from the trader's bank. If you can provide evidence of a breach of contract (goods are not delivered, are faulty or the trader has ceased trading, for example) you can ask your card provider to attempt to recover the payment. Check with your card provider as to how the scheme rules apply to your card, whether internet transactions are covered and what the time limit is for making a claim.

Never pay in cash in advance for anything if possible.

Consider buying from a trader that offers an insurance-backed guarantee or warranty but check the terms and conditions beforehand. An insurance-backed guarantee provides you with protection if the trader that provided the goods or service under guarantee ceases to trade and can no longer fulfil their obligations under the guarantee. The insurance company underwrites the terms of the guarantee for the remainder of the guarantee period. A warranty or extended warranty is a form of insurance policy that provides cover for the unexpected failure or breakdown of goods, usually after the manufacturer or trader's guarantee has run out. For more information see 'Guarantees and warranties'.

Last reviewed / updated: December 2022

Key legislation

Please note

This information is intended for guidance; only the courts can give an authoritative interpretation of the law.

The guide's 'Key legislation' links may only show the original version of the legislation, although some amending legislation is linked to separately where it is directly related to the content of a guide. Information on amendments to legislation can be found on each link's 'More Resources' tab.

For further information in England and Wales contact the Citizens Advice consumer service on 0808 2231133. In Scotland contact Advice Direct Scotland on 0808 164 6000. Both provide free, confidential and impartial advice on consumer issues.

The county council is not responsible for this information.