Furniture company Brosa’s collapse leaves thousands of customers in a position where they may last in line for a refund, despite the company being acquired by Kogan.
Here’s some advice on what to do if you ever find yourself in that position.
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thankyou Brendan for the ‘link’ to the Choice Review by Andy.
OMGod - - what a DISGUSTING Deal that was made by Liquidators, Korda with Kogan.
…
how can Korda use ‘Customers Cash’ that does NOT belong to Brosa to Satisfy Other Debts?
IN ADDITION, to the above - BROSA was TRADING whilst INSOLVENT -WHAT is KORDA doing about recovering Monies from Directors/ Shareholders/ Owners?
. the Choice article states “In the case of Brosa, secured creditors include former Brosa employees who haven’t been paid and a lender that provided funding. Employees will be paid in full, while the lender will receive 67 cents on the dollar, according to the creditors report. "
. were Funds MOVED?
. Shouldn’t the Lenders be trying to Recover funds from Owners who ‘kept trading’?
. in my opinion. Auditors & Liquidators are ‘far too friendly’ with those that 'voluntarily appoint them.
. why should 'Customers Cash “In Trust” Funds” (Goods NOT received) be paid to a ‘Brosa-Lender’ which is a 3rd party to the Sale transaction? - the 3rd Party has NO ‘Legal Entitlement’ to funds that are NOT Directly Owed to them. - these Funds do NOT belong to Brosa UNTIL the Sale is Completed…
.
THIS is alot of LAZY, SLOPPY ACCOUNTING and BULL…
ASIC - where are YOU???
@ppa, you has posted some interesting ideas.
In relation to your idea that any customer monies should remain in a trust account until the order is delivered, this will increase the price of many consumer products and would potentially cause many profitable businesses to become unprofitable. This is said as a company would need to cover all costs until the product is delivered. Most companies don’t operate with many months of revenue sitting in the bank, and money to support such an approach would need to be borrowed by the business. Borrowing costs would be passed onto the consumer.
Some businesses would cease trading if they can’t find short term loans to cover business costs between a sale and delivery.
Such an approach may also restrict supply. Businesses only being able to sell the number of products they can cover by other means. This would have an inflationary impact on many product prices.
The crux of the issue is consumers waiting for a backorder to be filled are classed as unsecured creditors. An unsecured creditor is a creditor which doesn’t have a interest in the company assets. Being unsecured creditors they only receive some sort of refund if every other creditor is paid out (employees, secured creditors etc) and there is money left in the business accounts.
Maybe an alternative and more realistic approach is seeing if the insurance industry is willing to provide cover for unsecured creditors. I imagine that if it was possible, the premiums would be significant and passed onto the consumer.
Another approach may be using deposits and payments like when building a house. A percentage deposit is used for the sale agreement and with ongoing payments until final payment for delivery. This could be used to cover the business costs. When a product is in stock, deposit is the delivered price. When the product isn’t in stock, payments are based on business costs to meet delivery milestones. This won’t remove losses gy the consumer when a business folds, gut may reduce the scale of the potential loss.
I should also say real estate trust funds are about removing house payments from general revenue of a solicitor firm. Purchasing a product is general revenue for a business which is very different proposition.
Musing
to make customers who have paid for goods secured creditors of higher standing to other secured creditors excepting perhaps the ATO and employee entitlements. It seems reasonable that those responsible for trading while insolvent or taking deposit/money while in the process of going into voluntary liquidation should be the ones bearing 100% of the liability.
This is normal. There is always a priority among the creditors. The liquidator has an obligation to get the best possible deal for creditors overall (put simply, the highest price). That would often not include an acquiring company being forced to deliver on outstanding orders. If the acquiring company were so forced then a) it would be harder, or impossible, to find a buyer for a distressed company b) the price paid by the acquiring company would be lower, which may not benefit creditors overall. Since creditors have to approve the deal, it may even mean that the deal falls over.
In some cases there may be no acquiring company at all, in which case the liquidators will just get what they can for the assets of the company and pay out X cents in the dollar to creditors.
Usually in cases of corporate collapse, the calls are for employees of the company not to be out of pocket and to be first in line e.g. salary for hours worked to date but not paid, and any unpaid super. The harsh reality is that it may not be possible to pay out both employees and customers to 100%.
That’s not the administrator’s / liquidator’s problem. If indeed that was the case, that is of course unlawful but it is up to the corporate watchdog to commence legal action in court against the directors - and prove to the required standard in court that this was the case. However that can often take years. (So if a customer actually wanted an item of furniture, it may be better to move on rather than to do without the item in the hope that enough funds are eventually recovered from directors to get the item of furniture, which by then will probably no longer be available anyway.)
And let’s be honest … we are talking a different order of magnitude. Yes, no one wants to lose X thousand dollars on an item of furniture but it pales into insignificance compared with the X hundred thousand dollars that fly around with real estate.
… which is kind of what happens for major (>$20k) building works. It is compulsory to have such cover - but of course that cover ultimately costs the customer money.
Would the complication, legal crap, administrivia of trust funds and/or insurance be justified for an item of furniture? Probably not.
As always in such a situation … for a recent purchase by credit card, it may be an option to contact the card issuer and see whether the transaction can be reversed (under the assumption that the merchant either won’t deliver at all or won’t deliver in a “reasonable” timeframe). You certainly can’t lose by asking.
