Many of you will have seen the news about the collapse of the Carcraft car dealership and the subsequent loss of around 500 jobs.  However, the ramifications of this company going into administration are even greater because of the  number of their customers who had signed up to break down or service agreements which will no longer be valid as a result of the company going into administration.  

Unfortunately in a situation like this, where a customer has entered into a long term contract  for the provisions of services, once the company goes into administration it can’t continue to provide those services and although customers may have paid up front for services such as break down and discounted services, they cannot automatically get their money back because it has gone into the company’s general income rather than being ring fenced. So all of those customers are in the same position as any other unsecured creditor.  Many people will remember that a similar situation occurred a few years ago when the Christmas hamper company, Farepak, collapsed leaving many people who had been saving for Christmas substantially out of pocket. 

I am sure that many customers will have thought that entering into such an agreement with a company as large as Carcraft was a safe thing to do but unfortunately you just have to look at how many household names have ceased trading in recent years, such as Woolworths and Comet, to appreciate that there is always going to be an element of risk with paying up front for services that might not be delivered for many months or even years. 

So can anything be done by these customers?  Based on the information which has been released in the press, it seems unlikely that anyone else is liable to pick up the responsibility for providing the break down or service agreements which have already been paid for.  The only thing which appears to be on offer is the possibility of the administrators seeing if they can get another company to provide roadside breakdown cover at a discounted rate. Clearly the incentive for any company to do that would be the hope that such customers would continue to deal with them well into the future.  

Aside from that all the customers will be creditors and will no doubt be contacted in due course for details of any claim they may have but if there is any payment to unsecured creditors it is likely to be a very small number of pennies in the pound and may be not even that.  Obviously if any customers were paying for these services on an instalment basis then they should look at the terms of their agreement which might enable them to stop their payments on the basis that Carcraft are no longer able to provide the services and if any of the services were out-sourced to another company then that obligation to provide those services may continue notwithstanding the administration of Carcraft. 

I think what this means in the future is that any retailer who is trying to persuade customers to pay up front for services that they may either never use or may not use for a number of months or perhaps even years, they will have a much harder time in selling those products and it is not hard to imagine that customers may take a similar view with things such as payment for extended warranties, although such products are usually backed by an insurance company.  As in all things it pays to read the small print very carefully to work out who you are dealing with and decide whether the potential benefits and savings outweigh the possible risk of the supplier no longer being around to provide the services that you have already paid for up front.