What can I do if I didn’t receive my purchase from an insolvent retailer?
The number of companies going into external administration has risen significantly over the last 12 months, and online retailers are among those most prevalent. When these businesses fail, customers with unfulfilled orders often receive little or no return on their claims. Accountants and lawyers, who are frequently called to guide their clients who have claims against insolvent entities, should be aware of alternative remedies such as chargebacks.
A chargeback is a reversal of a credit or debit card transaction initiated by the cardholder’s issuing bank. It can be requested when goods or services paid for have not been received. If a company goes into liquidation before delivering products, a chargeback may offer the buyer a practical way to recover their money outside of the insolvency process; particularly since the return to unsecured creditors in smaller liquidations is often negligible. The chargeback procedure typically involves the cardholder contacting their bank to lodge a dispute. The bank then investigates the claim and, if successful, credits the cardholder’s account. The merchant’s bank is notified accordingly, and liability for the charge typically reverts to the merchant (that is, the insolvent entity).
Beyond credit and debit cards, "buy now pay later" (BNPL) platforms such as Afterpay also have complaint and dispute procedures that customers can activate. If goods paid for via a BNPL service are never delivered, lodging a complaint may lead to a refund (and/or cancellation of future payments due). This approach is becoming increasingly relevant given the rise in consumers using BNPL options for online purchases.
By way of illustration, in a recent liquidation handled by our firm, an online haircare retailer collapsed before fulfilling a significant volume of small-value consumer orders (many hundreds). Many customers believed they were out of pocket with no recourse. However, on our suggestion, several were able to successfully initiate chargebacks through their respective banks. While the formal liquidation ultimately returned nothing to unsecured creditors (given the quantum of priority claims, such as employee entitlements) many individuals were able to recoup the cost of their unreceived products thanks to this mechanism.
For any reader with clients impacted by an insolvency, it is worth considering whether making a chargeback claim may assist. As part of the process, it is advisable to promptly contact the bank or BNPL provider, provide evidence of the undelivered goods (e.g., purchase receipts, correspondence from a liquidator, etc.), and follow up to ensure the dispute is assessed. Acting swiftly is crucial as most financial institutions impose time limits on when a chargeback claim can be lodged (often 60 to 120 days from the transaction date).
While chargebacks are not guaranteed, they can offer a faster and more certain remedy for those who might otherwise be left empty-handed by a business that becomes insolvent.
Summary points
Online retailer insolvencies are rising
Chargebacks can help clients recover funds for undelivered goods where there is no return expected.
Act quickly: time limits often range from 60 to 120 days.
