Large deposits a risky business

Today’s Business Day includes an article highlighting the risks associated with paying sizeable deposits to a business, a common practice in the residential construction industry. The publication features Douglas Wood and Anna Smith, who paid a one third deposit on a new heating system to Wellington based energy efficiency and insulation business Right House. The company was subsequently placed into liquidation before the system could be installed.

Right House appears to be a casualty of lack of demand, potentially fuelled by a government decision to cut back home insulation subsidies, and creditors are owed about $10 million. The bulk of that figure will go to parent company Mark Group, and further preferred or secured creditors. Mr Wood and Ms Smith (as well as other customers) are unsecured creditors, and as such will stand at the back of the line for recovering their deposit. Further, the process of making a claim can take months, and it is unlikely that unsecured creditors will be paid in full.

Mr Wood and Ms Smith are hoping that their deposit holds good and another gasfitter will be able to fit the hardware. If the liquidator is able to sell the business, the new owner would ideally complete the work for the remainder of the price.

Consumer NZ recommends that consumers do their due diligence before paying a deposit, especially a sizeable one. While deposits can be legitimate, for example to enable a business to order any necessary equipment, Consumer NZ suggests limiting the deposit to about 10% of the total price where possible. Click here for the Business Day article, which includes additional tips from Consumer NZ.

Further, consumers should be aware that once a company goes bust, any warranty given by that company in relation to materials or workmanship is likely to become worthless.

One thought on “Large deposits a risky business

  1. Pingback: Guarantees little comfort when company goes under | CONSTRUCTION LAW BLOG

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