Consumer NZ says the public should make sure they've got protection in place before making a deposit on big-ticket items.

The lesson has been underscored by a group of former Kitchen House customers, who paid deposits worth almost $180,000 to the firm before it collapsed.

Kitchen House closed all its six North Island outlets last year with the loss of 35 jobs, and left customers who had paid for their kitchens in the lurch.

Now those deposits, which were spared in the asset selldown by receiver KordaMentha when it paid out $195,000 to HSBC, may end up being paid to the former owners of the business.

Anthony Harris, acting for second-ranking creditors Brisma Ltd (as trustee of Brian Smaill Trust) and Walsma Ltd (as trustee of Walter Smaill Trust), has asked the High Court to authorise him to pay the fund to his appointing creditor.

The Smaill brothers, via a partnership between the trusts, owned Kitchen House's patent company CGKH, and are owed more than $1 million as second secured creditors behind HSBC.

Howard Thompson, a partner at McMahon Butterworth Thompson, who is advising Harris, said the matter came down to the terms of the contract been the customers and Kitchen House.

"What we can make out is that it was payment upfront, and it was the company's money when it was paid," Thompson said.

That would rank customers as unsecured creditors, putting them behind the partnership and a group of more than 10 other preferential creditors.

Critically, the firm is in receivership, not liquidation.

According to the Companies Office, in a receivership the assets are realised for the benefit of the secured creditor who made the appointment, while in a liquidation the assets are realised primarily for the benefit of unsecured creditors.

Maggie Edwards, an adviser at Consumer NZ, said the public could protect themselves against firms collapsing by insisting deposits were held in a third party trust or escrow account, as with real estate agents.

Auction site Trade Me and real estate agent Mike Pero have begun offering these services, but they've yet to become widely used in New Zealand as many companies use deposits to fund their businesses.

"You can understand that traders need the cash flow, but on the other hand, sometimes people get burned," Edwards said.

- © Fairfax NZ News

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