by Cary Gee
ANGRY creditors of the online wedding list company Wrapit are demanding to know whether the company was trading illegally before it was placed in administration last week.
According to customer reports the “award-winning” provider of up-market kitchen gadgets and hot air balloon rides was accepting new orders just three days before admitting it was broke.
Wrapit’s bank, HSBC, which has been blamed in part for the company’s demise, is trying to establish whether the company continued to accept new orders knowing there was little likelihood of them being fulfilled.
The collapse of the company has prompted new calls for a change in the laws which govern the responsibilities of company directors when it comes to advance payments – and a tightening of the law to ensure money paid in advance for goods is protected when a company goes bust.
It raises unhappy memories of the demise of Farepak, the Christmas savings club which called in the receivers in October 2006, after losing £35 million savings from 150,000 low income members.
In the wake of that disaster, the Government said “never again” and created an industry standards scheme to protect consumers. But it hasn’t worked.
In the case of Wrapit, which never turned a profit despite a £6 million turnover, money from orders received was used not to fulfill those orders but to keep the company afloat.
Wrapit co-founder Peter Gelardi, who has seen two previous telecoms ventures fail, insists HSBC must take responsibility for this latest failing, even writing to customers proposing that the bank should fulfill outstanding orders and saying: “When big banks change policies, little companies sometimes get squashed.”
But financial experts point out this wasn’t a small company brought down by short term cash flow problems or the tightening purse strings of a shell-shocked banking sector. And Wrapit’s eventual debts are expected to be almost double the original £3.5 million estimated by HSBC.
For the guests who splashed out to make their friends’ big day special there is an additional obstacle in the way of a full refund.
While newly-married couples may count their losses in the £1000s many individual gifts cost less than £100, so cannot be claimed under credit card protection schemes. There is no such protection when making purchases using a debit card.
The non-unionised staff of 100 are also big losers – they have been laid off with no indication that they will receive a penny they are owed in outstanding wages.
When Farepak collapsed calls were made to tighten the law when it became clear that, even though shares in Farepak’s parent company had been suspended in August, the company continued to collect money from its customers for a further two months.
Customers of Farepak and Wrapit paid cash up front, expecting to get the presents or hampers they had paid for, and then, when the firms went bust, it emerged the money had been spent but there was nothing to show for it.
A spokesman for the Department for Business Enterprise and Regulatory Reform said: “We are looking to see if there is a need for action.”
