Administration: what it means for you

Staff and customers are worried about Woolworths' demise.

Strict rules govern what happens to a business when it goes into administration.

For bosses, there is the emotional consideration of finding that their business has collapsed.

Staff face uncertainty about the future of their jobs, suppliers might worry about being paid, and in some cases customers have claims after paying for goods before a business folds.

Increasingly, the "For Sale" signs outside shops and stores are referring not just to the goods on display, but the business that have been trying to sell them.

As the recession in the UK takes hold, more companies are going bust.

Just over 4,000 went under in the third quarter of 2008 alone - a 26% rise over the past year.

If a company folds, then administrators will try to recue it by selling it, or parts of it, as a going concern.

But if that is not possible it will be closed down and its saleable assets will be sold.

After being declared insolvent a business might continue to operate for some weeks, so items being manufactured might be finished.

The funds raised from the sale of remaining stock, and the eventual sale of parts of the business itself, will pay debts owed to the bank first.

After that customers owed money might receive all or some of it.

Customers who have ordered goods from a company in administration often fear they might not receive their order.

MFI customers may still be able to claim some goods

In fact, if the goods have been paid for in full or with a deposit, and are sitting in a warehouse or distribution centre, customers should be able to collect them.

However that assumes the goods are identified as yours.

If not then you cannot claim the goods and you become a creditor instead.

Typically you must make a claim by writing to the administrator.

The name and address will be on the website of the business that has gone into administration.

Customers should outline the details of their purchase, when and where it was bought, and whether they want the product or their money back.

MFI's administrators have said they will contact customers to advise whether individual orders will be fulfilled.

They said it is the intention of MFI management to refund customers who paid by cash, cheque or debit card and allow credit card holders to seek a refund from their credit card provider.

Using a credit card to buy goods when spending more than �100, but less than �30,000, offers people protection under the Consumer Credit Act.

They should contact their card issuer in these circumstances. Similar rules exist for package holidays if a travel operator goes out of business.

Although those who paid by debit card, and people who spent less than �100, are not covered under the same rules, they should still contact their card provider who will deal with each on a case-by-case basis.

A Visa debit card should also be covered under the chargeback scheme although this is not a legal obligation.

Staff can sometimes be forgotten, especially by disgruntled customers of a collapsed company.

Staff should look for the warning signs that a business is not doing well Sarah Veale, TUC What does the future hold for businesses

They often discover they might be losing their jobs at very short notice, and businesses tend to be in administration only for a short amount of time before a decision is made about their future.

Woolworths' administrators have said that staff employed in its 800 stores will be paid while the stores are still open. They are not expected to close any stores until after Christmas.

Staff take their place behind the banks, but ahead of customers and suppliers, in the queue of creditors if they are still owed unpaid wages.

Sarah Veale, head of equality and employment rights at the TUC, says some employers cushion the blow of administration for staff whereas others are not always so considerate.

Staff should not feel guilty about looking around for a new job if they know a business is in trouble.

"Staff should look for the warning signs that a business is not doing well," she says.

Unions "kick up a fuss" if they believe a business and jobs can be saved.

They also offer financial and practical advice to staff losing their jobs along with organisations such as the Citizens Advice Bureau.

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