Insolvent companies will no longer own the goods paid for in advance by consumers, it has been announced.
The planned change forms part of a raft of measures designed to better protect consumers in the event of business insolvency.
According to the Government, the proposed new laws will “provide clarity” for consumers about the ownership of goods they have pre-paid for by adjusting the rules on “transfer of ownership”.
Introduced in 1983, the current legislation states that if a company becomes insolvent, goods paid for in advance that are still in its possession may still be considered as assets belonging to the business – and can therefore be used to pay off the firm’s debts.
However, the proposed new laws would change when a consumer effectively owns the product.
This would apply to almost all scenarios where goods are not immediately handed over at the point of sale, for example, online shopping and commissioned goods and services.
The Government says it has now asked the Law Commission to draft new legislation setting out a list of events and circumstances which would be sufficient to transfer ownership to the consumer.
Commenting on the announcement, Consumer Affairs Minister, Paul Scully, said: “With more and more people prepaying for goods online, it is so important our laws are up to date to reduce the risk of customers losing out if a business unfortunately becomes insolvent.
“This consultation will look at how the law can be brought into the 21st century, providing clarity for those managing insolvencies and better protection for consumers.”
Law Commissioner, Professor Sarah Green, added: “The current transfer of ownership rules are shrouded in complex language which consumers can find difficult to understand.
“We believe it is time for the rules to be modernised so that consumers have clarity on their rights of ownership, especially in an insolvency situation.”
According to the latest statistics, more than 20 per cent of purchases in the UK required pre-payment in 2020, with the majority of those taking place online.
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