When the economy takes a knock it’s not only consumers who struggle ‒ businesses struggle too. During the tough times it’s not uncommon for businesses to go bust as they battle to make ends meet. But it’s not always the economy that puts a strain on companies. Sometimes businesses also go under because of fraud or bad management, leaving their customers and employees high and dry.
Then, of course, buying anything from a new business that is still trying to establish itself is also risky. According to reports, between 70 and 80% of small or medium enterprises typically don’t make it beyond the first year of trading.
Still, smaller businesses do offer better savings than some of the more established players, and in a world where the general advice is to try and bag a bargain, it’s hard not to consider the alternatives and go with a company or individual who’s willing to give you a good deal.
But how can you protect yourself from the possibility of that business going bust, or that the owner will make off with your money? PJ Veldhuizen, managing director at law firm Gillan & Veldhuizen, answers our questions.
What are my rights if a business goes bust?
If you’ve parted with money for a service or product and you don’t get what you paid for while the company goes bust, then you are no better off than any other creditor.
Unless your money has been received into a trust that is separate from the business, the money will fall into the general pot to be distributed among all of the failed business’s creditors.
If the company has gone into liquidation, you will have to submit your claims with proof at the first meeting of creditors which will be scheduled by the liquidator. You must be careful, however, because if there are not enough assets in the company to satisfy the cost of liquidation, anybody who proves a claim at a meeting of the creditors can be called upon to make a contribution to the costs of liquidation. So you need to check first with the liquidator if there is a danger of a contribution being levied on concurrent creditors.
What can I do if the business owner has made off with my money?
If there is a lot of money at stake, you can lay a charge with the South African Police Service or you can bring legal proceedings against the company.
If it is a substantial amount of money, you can cause the company to be liquidated and you could pursue the person who has run off with the money with the liquidator, or yourself if the liquidator has refused to do so.
If it is a small amount of money, you can sue them through the Small Claims Court, which typically deals with civil matters where the claim is less than R15 000. These courts exist to make the process of your claim quicker and cheaper as you don’t have to use an attorney. You can, however, get legal advice if you want to before you go to court. For more information, visit the Department of Justice website.
If the person who owes you money has gone abroad with your funds, it makes things a lot more difficult and complex. In such cases it would only make financial sense to pursue that person if they have taken a lot of money from you. You can make use of the Reciprocal Enforcement of Civil Judgements Act to recover your money, but it’s a complex and expensive process, and only available in certain countries.
What are the chances of recovering my money?
The sad news is that if the company does go bang, then in all likelihood your chances of recovery are zero because SARS and secured creditors like banks have first call on any available money. You should therefore try and deal with reputable, large companies where possible and be careful about parting with your money. Don’t put all the money into a supplier’s account and then just hope that they will actually supply the promised service/goods, and if you are getting a deal from a small supplier, realise that the discount comes along with some risk.
How to avoid losing all your money
It’s possible to lose money with small as well as big businesses. But there are things you can do to ensure that you don’t get fleeced.
- Don’t pay in full upfront. Pay a smaller deposit and pay the balance on completion/delivery/receipt of goods.
- Try and deal with reputable and established companies. If a business has a track record there may be less of a chance of it going bust. But if you deal with someone who’s just started out, there’s a chance that they could be running a fly-by-night operation.
- If the deal or service is too good to be true, then it may well be. Find out from the seller or service provider why they are able to provide you with such a discount. How are they making their money? If they can’t give you a plausible explanation, rather walk away.
- Get legal advice if you’re unsure. If you are going to be spending a lot of money you should consult an attorney. Alternatively, get testimonials and alternative quotes from other providers in the industry.
- Hire a supplier/service provider that belongs to an association that they would need to adhere and report to should things go wrong. For example, ensure that your builder is registered with the National Home Builders Registration Council, which provides mediation services if there are disputes or disagreements.
- Know your consumer rights. Remember that you also have protection under the Consumer Protection Act. The Consumer Goods and Services Ombud can also be called upon to investigate contraventions of the law, free of charge. Call them on 0860 000 272 or email email@example.com.
- Pay with your credit card. This protection is offered by Visa and MasterCard internationally. If the goods or services aren’t provided by the merchant you can ask for a reversal of the transaction.
This article first appeared in City Press.