Consumer Prepayments on Retailer Insolvency

Current project status

  • Initiation: Could include discussing scope and terms of reference with lead Government Department
  • Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
  • Consultation: Likely to include consultation events and paper, making provisional proposals for comment
  • Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
  • Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

Protecting consumers who prepay for items. The Government published its response in December 2018, announcing that it will consult on new laws to protect Christmas savers and to change the rules on when property passes to consumers.

Download the report

Download the summary

The problem

Prepayments are popular because they can be used to budget for big spends, such as Christmas, or as a deposit for major purchases like cars or new kitchens. On a smaller scale, gift vouchers and cards solve the dilemma of choosing the “right” gift.

However, if the business that has taken the prepayment goes bust, consumers may be left with neither the item they paid for, nor any real prospect of a refund.

The collapse of the Farepak Christmas savings club in 2006 left many vulnerable consumers out of pocket. More recent high-profile retailer insolvencies have further highlighted the lack of protection for consumers making these kinds of payments.

Consumers, who are classed as unsecured creditors, are very near the bottom of the list for repayment and frequently receive nothing. Consumers are also often unaware of the legal situation, and in some cases, conflicting information from administrators further confuses the situation.

The project

This project, which was commissioned by the then Department for Business, Innovation and Skills (BIS), considered whether greater protection is needed for consumers who lose deposits or gift vouchers when retailers or other service providers become insolvent.

After receiving the referral from BIS, we gathered empirical evidence about the scale of the problem and the current law. In summer 2015, we set out our findings and consulted on possible solutions. We received 41 responses to our consultation, a summary of which is available below.

We analysed the consultation responses and developed final recommendations, set out in our July 2016 report. The report, and a shorter summary of it, are available below.

The report sets out five recommendations which would improve consumers’ position on insolvency:

  • Regulating Christmas and similar savings schemes, which pose a particular risk to vulnerable consumers.
  • Introducing a general power for Government to require prepayment protection in sectors which pose a particular risk to consumers.
  • Giving consumers more information about obtaining a refund through their debit or credit card issuer.
  • Making a limited change to the insolvency hierarchy, to give a preference to the most vulnerable category of prepaying consumers.
  • Making changes to the rules on when consumers acquire ownership of goods.


We laid our report before Parliament on 13 July 2016 and the Government published its response on 28 December 2018. The Government has announced its intention to consult on introducing protections for consumers using Christmas savings schemes and, in due course, to consider updating the current rules of transfer of property. Our recommendations to ensure that consumers receive better information in the event of insolvency are already being taken forward by the Insolvency Service.

The team involved in the preparation of the report included Tamara Goriely (team manager), Laura Burgoyne (team lawyer), Conor McLaughlin (research assistant 2014-15) and Paul Smylie (research assistant 2015-16).

Related work

In 2019, the Department for Business, Energy and Industrial Strategy (BEIS) asked us to draft legislation to implement our recommendation that changes should be made to the rules on when consumers acquire ownership of goods. Further information about this work can be found on our website at:

Documents and downloads

Project details

Area of law

Commercial and common law


Professor Sarah Green