Law Commission recommendations on vouchers and deposits in insolvency ‘a mixed bag’

14 July 2016

Commenting on the Law Commission's recommendations on reforming the treatment of consumer deposits and vouchers in retail insolvencies (published this morning - full report; press release), Andrew Tate, president of UK insolvency and restructuring trade body R3, says:

"The Law Commission's recommendations are a mixed bag. While there are welcome recommendations on consumer guidance and vouchers, some proposals would be difficult to implement in practice and could have unintended side-effects."

"Deposits and vouchers are very important considerations for the insolvency and restructuring profession when it comes to retail insolvencies, and we are disappointed that more of the profession's recommendations have not been taken on board."

"The Law Commission appears to have gone much further in its recommendations than expected. The proposal to improve the position of some consumers with deposits in the order of priority of insolvency repayments is especially controversial."

"Protecting consumers in insolvencies is incredibly important and it can be a stressful time for those who fear that they may lose deposits paid, but consumer rights do need to be balanced against those of other creditors. Improving the position of one set of creditors could also make it more difficult to rescue businesses."

"This would be the first major change to the order of priority of payments in insolvency proceedings in over a decade and may discourage lending to retailers, particularly those in distress. Banks and other finance providers will be wary of providing certain forms of rescue finance if there is a risk that a large chunk of a retailer's assets will have to be used to repay deposits if it becomes insolvent. The retailer's ordinary trade creditors would lose out, too, which could put them in financial difficulty."

"There are already protections available for consumers, particularly those that pay by credit card. The Law Commission has made some useful recommendations for how information could be better shared with consumers about their rights, which we welcome."

"Some of the Law Commission's proposals might be difficult to implement in practice. With thousands of deposit holders, it might be difficult for an administrator or liquidator to establish who qualifies for a preferential payment and who doesn't, for example."

"The Law Commission is right to recommend that no regulations be introduced for vouchers but that the government should do more to raise consumer awareness of the risks they take when purchasing them. Whether or not a retailer should continue to accept vouchers should be a commercial decision for the administrators or liquidators based on the facts of each individual case."