Legislation considered to protect customers when businesses collapse

The Government is considering new laws with the aim of protecting consumers when a business becomes insolvent and the consumers have prepaid for products.

The Department for Business, Energy & Industrial Strategy, which published the report, said the planned measures include requiring consumer prepayments to be protected in certain sectors.

This would apply to common forms of prepayment such as internet orders, gift vouchers and money saved in payment schemes.

The Government believes that this would strengthen its ability to “respond quickly to problems involving consumers who have prepaid for goods or services before a firm becomes insolvent”.

Likewise, the new laws would see prepayments safeguarded with legislation requiring businesses to adopt measures to protect customers against losses – whether that is through trusts, insurance or other mechanisms.

Commenting on the report, Business Secretary Greg Clark said: “When consumers prepay for items through savings clubs it is reasonable to expect that if something goes wrong, their money should have some degree of protection. The measures we are consulting on will give shoppers greater peace of mind.

“It’s all part of how we’re helping make markets fairer for all, especially the most vulnerable, as part of our modern Industrial Strategy – with more to come next year through our comprehensive Consumer White Paper.”

The proposed new laws form part of a packet of measures designed to protect consumers following insolvencies, who are often considered ‘unsecured’ in the event of a business collapse.

The changes being considered would place pressure on businesses to ensure that consumer funds are essentially ring-fenced so that even companies facing insolvency are able to refund consumers who are not likely to receive their products.

If you would like to speak to someone about how these proposed changes could affect your business, please get in touch with a member of Mackrell Turner Garrett’s Corporate Department.

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Maung Aye
Maung is a partner in our Corporate and Commercial department. He joined Mackrell Turner Garrett following corporate law positions in London and in a leading regional firm in Essex. Maung read European Legal Studies at Lancaster University and the Università degli Studi di Trento and is a fluent Italian speaker.