UK set to update law to help customers claim ownership of goods in insolvency cases

THE Law Commission has announced proposals to ensure consumers can claim ownership of goods they have prepaid for when a retailer goes insolvent.

Under the current rules on “transfer of ownership” – that date back to 1893 – if a company becomes insolvent, goods paid for in advance that are still in a retailer’s possession “may be considered as assets belonging to the business”, and used to pay off its debts, leaving consumers out of pocket.

For instance, charity network Citizens Advice recently provided the Law Commission a case study of a consumer who had paid £2,400 for furniture, but was left in the lurch as the retailer had gone into insolvency.

“Because our flat was in a state [the trader] told us that they would store our furniture until we were ready for delivery,” said the customer. “Our flat is now nearly there, so I tried to call [the trader] last week, to arrange a date to have our furniture delivered, only to discover that they had gone into receivership. I am horrified.”

Another family that had purchased curtains, and got them shortened by a shop, was told they “couldn’t have the curtains as they were assets of the company, and the assets were frozen”.

The Law Commission’s proposals will provide clarity for consumers caught in such insolvency tangles, and are of significance especially in the case of online shoppers.

About 20 per cent of all retail sales in the UK take place online and require prepayment. Following the Covid-19 outbreak, online retail sales grew from 19.9 per cent in January to 32.8 per cent in May.

Taking note of the scenario, Consumer Affairs Minister Paul Scully asked the Law Commission to consult on draft legislation to “update the law that establishes when consumers legally own goods for which they have pre-paid”.

“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,” he said.

“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.”

Law Commissioner Professor Sarah Green noted that the “current transfer of ownership rules are shrouded in complex language which consumers can find difficult to understand”.

“We believe it is time for the rules to be modernised so that consumers have clarity on their rights of ownership, especially in an insolvency situation,” she added.

A spokesperson for the Department of Business, Energy and Industrial Strategy said the changes in rules would build on the recent Corporate Insolvency and Governance Bill, which had received Royal Assent on June 25.