The dangers of dissolution

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The dangers of dissolution

In February's issue of GGP magazine, Faisal Hussain, Chief Executive of the Double Glazing & Conservatory Ombudsman Scheme (DGCOS) talks about the problems that can occur when installation companies are dissolved rather than put into liquidation, in our regular column Installer Matters.  

In the course of our work at DGCOS, we deal with a lot of positives every day when we’re talking to and meeting with our members. We offer a range of services to installers, from marketing and sales, financial, contractual, recruitment and retention advice, to name but a few of our Installer Journey Benefits. However, as in all markets, there can be a darker side which is sometimes swept under the carpet.

An end to over-promising

In my last column, I wrote about manufacturers’ warranties and the fact that they are often trade-only warranties. Retail door and window companies shout loudly about the warranties on their products, usually promoted as 10-year warranties, which give the homeowner reassurance that they are protected. Quite often, these warranties stem from what the manufacturer provides to the installer, and unless specifically stated in the warranty wording, don’t actually apply to the end user. This is because the warranties provided by a manufacturer are provided to their customer, the installer and not the end user, the homeowner, something that isn’t always clear.

The end of a business

Another consumer protection concern that raises its head and one that DGCOS has to tackle, is what happens when an installation company ceases to trade, and what are the implications for the homeowner? There are any number of reasons why a company may stop trading: retirement, death of the owner, a decision to move into a different sector, and of course when a company runs out of money, which as we all know sadly happens.

If a company is solvent, it can choose to be dissolved, perfectly legally, if it has stopped trading for a period of time and doesn’t have any outstanding obligations. This is a quick process, which only involves filling in a form issued by Companies House, and, unless anyone objects, the company can be removed from the register within a couple of months, as long as they have given notice to all shareholders and creditors. While the process is quick and cost-effective, an installation business cannot forget it has guarantee liabilities which must be honoured. Dissolving a business to avoid liabilities is morally dubious and can have implications for those with 10 year warranties.

Stand by your promises

The other option is to go into liquidation. Any company which cannot afford to pay its debts must go down this road, but, crucially, solvent companies can take this option as well. The process is more expensive because a Licensed Insolvency Practitioner has to manage the process and it can take up to a year.. Under section 1003 of the Companies Act, two circumstances need to be met for a company to be dissolved, and if they aren’t, they have to ethically go into liquidation.

Firstly, if the company closing down has business guarantees to customers in place, they have an obligation to honour them. On that basis it has to continue to trade for the duration of the guarantees that are in place. Secondly, all creditors have to be notified that a company is being dissolved and homeowners in this situation are creditors for as long as they have access to guarantees. Extending 10 year warranties has long term implications on a number of levels, particularly when a company goes out of business. All we are asking is that installers in this situation consider their customers if this situation arises.

As an organisation that’s all about consumer protection, this issue of how a company closes down needs to be discussed on a wider platform. The fact that a solvent company can effectively just disappear without recourse to consumers, or creditors as they are in legal terms, leaves them exposed and unprotected. It’s not a pleasant or particularly attractive topic for the industry to discuss, but as we’ve said many times before, DGCOS is not afraid to tackle these darker issues which are often swept under the carpet. I’d be interested to hear the views of door and window retailers about the subject.

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