When a business closes its doors for good, consumers often call Consumer Protection with concerns about what happens with the goods or services they’ve paid for but are yet to receive, or what to do with unspent gift vouchers or credit notes.

How consumers and creditors are affected when a business goes bust depends on the circumstances.

If the business is a company, it becomes insolvent and can be put into voluntary administration where steps are taken to save it. Should that fail, the next step is often liquidation where the company’s affairs are wound up and assets distributed. But who gets paid first?

If there is money left after paying secured creditors such as suppliers, and then any employees - you as a consumer are the last in line to be repaid. You can register with the administrator or liquidator as an unsecured creditor, but you may only get some of your money back or nothing at all.

If you paid by credit card, contact your card provider and request a chargeback as soon as possible because time-limits apply.

Sometimes a business under administration will continue trading so there could be the option of claiming your product or service but you must have paid in full (or pay the liquidator the balance) and have a receipt or some other proof of purchase.

When it comes to using gift cards or credit notes the administrator may put in place conditions such as requiring the customer to spend an equal dollar amount to the gift card in one transaction. For example, a $50 gift card means you need to make a $100 purchase. If the business is sold as part of the administration process, the new owners can choose whether they honour outstanding gift cards or credit notes.

It's always a smart idea to spend gift cards sooner rather than later – just in case the trader does go out of business.

To find out who the administrator or liquidator is, contact the Australian Securities and Investment Commission (ASIC) - insolvency notices. You can also find out through newspapers or on the company's website.

When it comes to sole traders, the rules are different – because the business is tied to the individual owner’s income, the individual would declare personal bankruptcy. Sadly, there is a growing issue of sole traders telling consumers they have gone under to avoid meeting their responsibilities.

Consumer Protection urges customers to do an Australian Financial Security Authority (AFSA) search to check if that’s the case - www.afsa.gov.au – before taking a trader’s word for it.

What about warranties or your consumer guarantees? If the manufacturer of your item is different from the business that went bust, you can contact them direct for a remedy under Australian Consumer Law. If the business continues to trade under administration, this means they can still meet your consumer guarantees. Just like with gift cards and credit notes, if the business was sold as part of the administration process, the new business can choose whether they deal with products purchased before they became the new owners.

For further information, contact Consumer Protection on 1300 30 40 54 or consumer@demirs.wa.gov.au or see our Insolvency page.